On Friday, Wolfe Research analyst Keith Stanley upgraded Plains All American (NASDAQ:PAA) from Peer Perform to Outperform. Despite the stock’s impressive 30.1% return over the past year and 9.66% gain year-to-date, the adjustment comes after Plains All American’s performance lagged behind its midstream industry peers throughout 2024.
Stanley highlighted that investors had shown a preference for gas-focused infrastructure, C-corporations, and companies with growth potential. According to InvestingPro data, the stock is currently trading slightly above its Fair Value.
Stanley’s analysis pointed out that despite the underperformance, Plains All American has delivered strong financial results and now presents a deep value opportunity that contradicts the consensus. He noted the company’s valuation discount has become more pronounced, which could be attractive to investors looking for value. InvestingPro analysis supports this view, showing a "GOOD" overall Financial Health Score of 2.86, with particularly strong momentum metrics.
The Wolfe Research analyst underscored the company’s robust financial health, mentioning the balance sheet as a particularly underappreciated asset. According to Stanley, this could aid cash flow growth through strategic tuck-in acquisitions or by refinancing its expensive preferred stock.
Plains All American’s ability to generate strong organic cash flow was also emphasized, with Stanley citing the company’s rapidly increasing dividend yield as a sign of strength. The company currently offers an attractive 8.12% dividend yield, with remarkable dividend growth of 42.06% over the last twelve months. The soundness of the balance sheet was seen as a supporting factor for this positive cash flow, evidenced by a strong free cash flow yield of 16%.
Finally, Stanley suggested that Plains All American could be a potential acquisition target in the future. This view is based on the company’s financial performance and its position in the market, which may make it attractive to larger entities looking to expand their midstream operations.
With a market capitalization of $13.18 billion and EBITDA of $2.67 billion, the company represents a significant player in the midstream sector. For deeper insights into Plains All American’s valuation metrics and acquisition potential, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Plains All American Pipeline, L.P. reported strong operational performance in its third-quarter 2024 earnings call. The company projects an adjusted EBITDA for the year between $2.725 billion and $2.775 billion, with significant growth expected in the Permian region. Plains anticipates an increase in volumes by 200,000 to 300,000 barrels per day by the end of the year. The company also announced the acquisition of the Fivestones Permian gathering system and the settlement of lawsuits from a 2015 oil spill, which resulted in a $120 million charge.
Recovery of $175 million from insurance claims is expected by the first quarter of 2025. Plains reported an adjusted EBITDA of $659 million for the third quarter and projects a $1.45 billion adjusted free cash flow for 2024. The company also received a Moody’s (NYSE:MCO) upgrade to Baa2.
Recent developments include the Fort Saskatchewan fractionation expansion, which is on track for completion in the first half of 2025. Plains maintains a focus on capital discipline and returning capital to investors, with management emphasizing free cash flow and exploring bolt-on acquisitions.
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