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Plains All American Trades at a Much Higher Forward Yield than Its Historical Average


Jan. 22 2016, Updated 3:06 a.m. ET

Plains All American’s forward distribution yield

Plains All American Pipeline (PAA) currently trades at a forward distribution yield of about 14%. This is more than double its five-year average distribution yield of 6.6%. The forward distribution yield of a company is calculated by dividing its estimated one-year future distribution per unit by its market price per unit.

We should note, however, that low commodity prices have pushed yields up for most companies in the energy sector, and the steep decline in Plains All American’s stock price since mid-2015 has pushed its yield up.

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The Alerian MLP Index (AMZ), an index of the top midstream MLPs (master limited partnerships), currently trades at a yield of approximately 9.1%. The above graph compares Plains All American’s historical distribution yields to its five-year average. PAA makes up about 7.6% of the Global X MLP ETF (MLPA), which consists of 30 energy sector MLPs.

Plains All American’s EV-to-EBITDA multiple

Plains All American Pipeline’s forward EV-to-EBITDA (enterprise value-to-earnings before interest, tax, depreciation, and amortization) multiple of 8.1 is lower than its historical average of 11.3.

The enterprise value of a company is roughly the market value of its debt and equity minus its cash holdings. But the EV-to-EBITDA ratio is neutral to capital structure, as it takes into account a company’s debt and equity. Please note that a lower ratio may indicate a possible undervaluation.

PAA’s forward EV-to-EBITDA is lower than its trailing 12-month EV-to-EBITDA

Plains All American Pipeline’s forward EV-to-EBITDA multiple is also lower than its trailing 12-month EV-to-EBITDA multiple of 9.9. This indicates particular expectations of EBITDA growth in the fourth quarter of 2015. The company will report its 4Q15 results on February 8, 2016.

Enbridge Energy Partners (EEP), Sunoco Logistics Partners (SXL), Magellan Midstream Partners (MMP), and Enterprise Products Partners (EPD) are other companies with midstream operations. We’ll see how Plains All American Pipeline’s forward yield and EV-to-EBITDA multiple compares with their multiples in the next part of this series.


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