On Thursday, Mizuho Securities adjusted its financial outlook for Plains GP Holdings, L.P. (NASDAQ:PAGP), increasing its price target to $21 from the previous $19 while reaffirming an Outperform rating on the stock.
The firm predicts that Plains All American Pipeline (PAA), which is closely associated with Plains GP Holdings, may announce a guidance increase during its second-quarter 2024 update, which is scheduled for release before the market opens on August 2, 2024.
The revision in the price target is attributed to several positive factors that are expected to impact the company's performance. These include contributions from recent acquisitions, an uptrend in crude oil prices, favorable natural gas liquids (NGL) fractionation spreads, and record spreads between isobutane and butane.
Mizuho's analysis highlights that Plains GP Holdings has outperformed the American Midstream Energy Index (AMEI) year-to-date, registering gains of 30.2% and 29.4% for PAA and PAGP respectively, compared to the index's 22.8% increase.
The firm also noted the removal of a significant investment concern for Plains All American Pipeline in its first-quarter 2024 update, which has positively influenced investor sentiment.
Looking ahead, the focus for investors is expected to shift towards long-term growth prospects in the Permian Basin and Plains All American Pipeline's potential to consolidate its presence and deliver attractive returns.
Mizuho also pointed out that the estimated free cash flow yield for 2026, while not as high as in recent years, remains compelling when compared to industry peers. Additionally, the company's balance sheet is viewed favorably in comparison to its competitors.
The updated price target reflects Mizuho's confidence in higher financial estimates and the application of increased multiples for Plains GP Holdings.
In other recent news, Plains All American Pipeline and Plains GP Holdings have reported significant developments. The companies announced an adjusted EBITDA of $718 million for the first quarter and maintained their 2024 EBITDA forecast.
Citi, maintaining a neutral stance on Plains All American, anticipates that the company may guide towards the higher end of its current EBITDA forecast range of $2.625 billion to $2.725 billion.
In addition to earnings, Plains All American has seen recent mergers and acquisitions activity, including the acquisition of an additional 10% in Saddlehorn Pipeline Company and Mid-Con Terminal asset. These acquisitions are expected to generate returns in line with the company's return threshold.
Furthermore, Plains GP Holdings and Plains All American Pipeline have issued $650 million in senior unsecured notes due in 2034. This move is part of a broader strategy to manage its capital structure and finance its operations.
Despite the anticipated flat performance in 2026 and upcoming maintenance on the Wink-to-Webster pipeline, Plains All American's Canadian assets and Permian production growth outlook remains positive.
The company expects Permian production growth to be between 200,000 to 300,000 barrels per day by the end of 2024. These recent developments underscore the company's strategic focus on long-term consistent cash flow and asset optimization.
InvestingPro Insights
As Plains GP Holdings (NASDAQ:PAGP) garners attention following Mizuho Securities' upgraded price target, real-time data from InvestingPro provides additional context to the company's financial health and market performance. With a market capitalization of $4.49 billion and a P/E ratio of 22.15, PAGP's valuation suggests a strong free cash flow yield, aligning with Mizuho's positive outlook on the company's financial estimates. Moreover, the stock has been a paragon of stability, generally trading with low price volatility, which might appeal to risk-averse investors.
InvestingPro Tips indicate that while PAGP has weak gross profit margins of 5.82%, it remains a prominent player in the Oil, Gas & Consumable Fuels industry and has upheld dividend payments for 11 consecutive years. The company's stock is also trading near its 52-week high, reflecting a 31.11% one-year price total return, which underscores the firm's robust market performance.
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