On Friday, Goldman Sachs revised its price target for Plains All American (NASDAQ:PAA), increasing it to $16.00 from the previous $14.50. Despite the adjustment, the firm maintained its Sell rating on the stock. The change comes as the analyst firm updated its estimates for the company ahead of its first-quarter 2024 earnings report.
The analyst firm anticipates Plains All American to report an EBITDA of $695 million for the first quarter of 2024, which falls below the consensus estimate of $714 million and their earlier projection of $720 million. The revision is primarily due to weaker-than-expected crude volumes from the Permian Basin and a decline in crude marketing contributions.
For the full year 2024, Goldman Sachs has slightly modified its EBITDA estimate for Plains All American to $2,674 million, compared to the consensus figure of $2,691 million and their previous estimate of $2,669 million. The firm suggests there may be further downside to projections for the outer years, particularly due to potential softer contributions from the Permian Basin.
Despite the price target raise, the analyst firm expresses concerns over the valuation of Plains All American, noting that the stock's growth appears limited and its free cash flow (FCF) is not significantly wider compared to its peers. The stock's performance has been strong, with a year-to-date increase of 19% compared to the AMNA index's 7% rise, fueled by a higher investor interest in companies with robust FCF yields, growing confidence in the durability of Permian supply, and recent strength in oil prices.
Goldman Sachs points out that Plains All American's valuation is considered stretched, trading at approximately 8 times its projected 2025-2027 EBITDA, in contrast to Energy Transfer 's (NYSE:ET, Neutral) multiple of around 7.5 times, despite Energy Transfer's larger scale and more diversified asset portfolio.
InvestingPro Insights
As Plains All American (NASDAQ:PAA) approaches its Q1 2024 earnings date on May 3, 2024, the company's financial health and market performance remain key points of interest for investors. With a market capitalization of $12.61 billion, the company's current P/E ratio stands at 12.81, reflecting investor sentiment about its earnings potential. The adjusted P/E ratio for the last twelve months as of Q4 2023 is slightly higher at 14.4, indicating a market expectation of growth.
InvestingPro Tips suggest that the PEG ratio, which currently sits at 0.73, may indicate that the stock is potentially undervalued based on its earnings growth. Additionally, the dividend yield of 6.73% as of the latest dividend ex-date on January 30, 2024, coupled with a significant dividend growth of 45.98% in the last twelve months of Q4 2023, could attract income-focused investors. For those looking for further insights, InvestingPro offers additional tips; there are 7 more tips available for Plains All American on the platform.
Recent price performance shows a 1-year total return of 56.38%, significantly outperforming the previous price target set by Goldman Sachs. The stock is currently trading at 99.21% of its 52-week high, with a previous close at $18.13, which is above both the analyst target of $18.00 and the InvestingPro Fair Value estimate of $18.35. This suggests a positive outlook on the stock's valuation from the perspective of InvestingPro's metrics. For those interested in a deeper analysis, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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