Plains All-American Pipeline LP (PAA) Q2 Results - Aug 7

[dan_s]

Stifel: Plains All American Pipeline, L.P. (PAA, $22.15, Buy; Target $25.00) by Selman Akyol

PAA: 2019 Guidance Up, 2020 Capex Flat

PAA reported 2Q19 Adjusted EBITDA of $784 million compared to our estimate of $598 million, driven by an outperformance in its S&L segment. However, PAA's Transportation segment Adjusted EBITDA was $410 million compared to our $423 million estimate. The 3% delta was driven by lower JV earnings and higher operating costs. Furthermore, Plains lowered its FY19 Transportation guidance by $25 million.

Management cited producer activity for 2H19 as the main driver. Also, PAA's FY19 capex increased by $150 million to $1.5 billion to support its Red Oak pipeline and Diamond and Saddlehorn expansions. No formal guidance was given for 2020, however PAA indicated 2020 capex should remain within range of 2019 numbers.

We note that most midstream names have highlighted declining FY20 capex. We remain positive on PAA, although production growth uncertainty in the Permian could weigh on the name. We remain Buy rated and adjust our target price to $25.00.