PAA - Plains All American: A Solid 8% Distribution Play

2024-03-17 05:41:25 ET

Summary

• Plains All American Pipeline is an attractive distribution play in the master limited partnership space with a projected 1.9X distribution coverage ratio for FY 2024.
• The company owns and operates midstream energy infrastructure, with a focus on the fast-growing Permian basin.
• Plains All American Pipeline is currently valued at an enterprise-value-to-EBITDA ratio of 8.0X, which I see as reasonable.
• Given the distribution coverage, a distribution increase later this year is likely.

Plains All American Pipeline ( PAA ) is an attractive distribution play for investors who want to gain a foothold in the master limited partnership space. The pipeline company generates more than half of its adjusted EBITDA from its fast-growing pipeline operations in the Permian basin and has very strong distribution coverage. Based off of the MLP’s outlook for FY 2024, the pipeline company is set to achieve a massive 190% distribution coverage ratio which creates upside for the distribution as well. I believe that Plains All American is a well-run master limited partnership that trades at a reasonable unit price, and the 8% distribution yield is well-secured by cash flow. I initiate Plains All American with a hold rating!...

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