Future NGL Projects And Acquisitions Will Expand Capacity And Increase Efficiency

Key Takeaways

• Strategic acquisitions and project completions are expected to drive revenue growth and improved earnings through expanded capacity, asset integration, and synergies.
  
• Increased cash flow stability and financial flexibility are anticipated from resolving key legal claims, insurance reimbursements, and capital efficiency improvements, enhancing net margins and shareholder returns.
  
• Legal settlements, supply disruptions, and economic uncertainties could impact earnings, cash flow, and long-term revenue growth for the company.

Catalysts

Through its subsidiaries, engages in the pipeline transportation, terminaling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada.

• The completion of the Fort Saskatchewan Fractionation expansion project by the first half of 2025 is expected to enhance Plains' NGL business, contributing to revenue growth and improved earnings through expanded capacity and efficiency.
  
• The strategic acquisition of the Fivestones Permian gathering system is part of Plains' efficient growth strategy, providing incremental growth opportunities by enhancing their existing portfolio, potentially increasing revenue through greater asset integration and synergies.
  
• Plains is actively pursuing bolt-on acquisitions across its portfolio, which are anticipated to generate substantial free cash flow and return capital to investors, positively impacting net margins and overall earnings.
  
• The resolution of material claims from the 2015 oil spill litigation in California and expected insurance reimbursement of $175 million in early 2025 will provide greater cash flow stability and financial flexibility, improving net earnings by reducing future liabilities.
  
• Plains' capital efficiency improvements, including lower leverage and capital expenditure reductions, could enhance net margins and return more capital to shareholders, as well as support sustainable earnings growth.

Plains All American Pipeline Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Plains All American Pipeline's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 2.1% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $2.0) by about December 2027, up from $788.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.4 billion in earnings, and the most bearish expecting $678 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2027 earnings, down from 15.6x today. This future PE is greater than the current PE for the US Oil and Gas industry at 10.9x.
• Analysts expect the number of shares outstanding to decline by 7.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.41%, as per the Simply Wall St company report.

Plains All American Pipeline Future Earnings Per Share Growth

Risks

• The $120 million charge due to legal settlements related to the 2015 oil spill in California could impact net earnings in the fiscal year the settlement is realized.
  
• Potential OPEC supply changes and geopolitical unrest could disrupt crude oil supply and demand balances, impacting future revenue and margins.
  
• The company's expectation of settlement reimbursement from insurance carriers introduces uncertainty around cash flow in case it does not materialize as expected, potentially impacting net earnings and financial flexibility.
  
• Continued lower horizontal rig counts despite Permian volume growth create risk for sustaining revenue growth long-term if producer efficiencies can't fully offset this trend.
  
• Economic uncertainties around China and broader markets could pose risks to demand for energy products, potentially impacting revenue and earnings.

Valuation

• The analysts have a consensus price target of $20.31 for Plains All American Pipeline based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $17.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $52.9 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 8.4%.
• Given the current share price of $17.44, the analyst's price target of $20.31 is 14.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.