Plains All American Gets A Goldman Upgrade On Improving Fundamentals

Plains All American Pipeline, L.P. PAA reported better-than-expected 2Q16 results, while reaffirming its 2016 guidance.

Goldman Sachs’ Jerren Holder upgraded the rating on the company from Sell to Neutral, while raising the price target from $21 to $26.

Results And Estimates

“PAA reported better-than-expected 2Q16 earnings supported by solid volumes in its fee-based Transportation and Facilities segments. Management also reaffirmed 2016 guidance, calling for EBITDA of $2.175 billion at the midpoint,” Holder said.

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The analyst raised the EBITDA estimates for Plains All American to reflect the improved volumes and margins, while the annualized distribution estimate was also raised to $2.20 per unit, in line with the guidance.

Reasons For The Upgrade

“We are incrementally positive on PAA as we believe it will not need to cut distribution again given our base-case for restarting the US shale machine. We think this view on distribution removes a key negative catalyst for the stock,” Holder explained.

Although there still are near-term leverage concerns, the analyst believes the company is on the path to improving its balance sheet, as volumes recover.

Holder expects Plains All American to generate incremental earnings as U.S. oil production growth resumes in 2017 and with contracted projects coming on line through 2017.

In addition, the analyst believes that the company’s “implied yield of 8.3 percent largely reflects its slower distribution growth prospects,” while expecting “limited yield compression from here.”

Full ratings data available on Benzinga Pro.