Plains All-American Pipeline LP (PAA & PAGP) Update 10/1

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Plains All-American Pipeline LP (PAA & PAGP) Update 10/1

Post by dan_s »

I just finished updating the profile for PAA and PAGP. They are really the same company, but PAA is an MLP and PAGP is a C-Corp.

At the time of this post PAA was trading at $10.22. PAA and PAGP pay quarterly dividends of $0.18 giving PAA an annualized yield of ~7%.

Based on the Company's guidance and my forecast, PAA can and should raise their dividend in 2022. They cut the dividends in half in 2020 because of the pandemic. It was the right move and the Company was able to generate free cash flow after dividends in 2020 and they are in great shape this year, generating DCF coverage of more than 2X in 1H 2021 that should increase further in 2H 2021. Based on my forecast model, DCF coverage should increase to 2.5X or more in 2022.

My current valuation is $13.50 for PAA and slightly higher for PAGP. Assuming that they increase the quarterly dividend by 50% in 2022, a reasonable 12-month price target for PAA will be $16.00, which is still just 6X operating cash flow per unit. Run a 5-year chart for PAA and you will see that it was trading over $32/unit. High quality midstream companies like PAA should trade for 8X to 10X in "Post-Pandemic World".

TipRanks: "In the last 3 months, 5 ranked analysts set 12-month price targets for PAA. The average price target among the analysts is $12.80." The five price targets range from $10.50 to $14.00.

PAA's business is tied to the gathering, transportation and storage of liquids (oil and NGLs). If oil prices stay close to where they are today, D&C upstream budgets will be expanded in 2022 and additional oil production will benefit PAA.
Dan Steffens
Energy Prospectus Group
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