Ironwood And Midway Acquisitions Will Expand Asset Base By 2025

Key Takeaways

• Strategic acquisitions and operational efficiency improvements drive potential revenue growth and enhanced net margins.
  
• Improved cash flow management and disciplined investments promote shareholder returns and financial stability, supporting earnings growth.
  
• Challenges including contract tariff resets, unsuccessful arbitration, and acquisition pitfalls may hamper revenue, earnings, and free cash flow growth projections.

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.

• Expected growth in Permian crude production by 200,000 to 300,000 barrels per day by the end of 2025, coupled with the aim to achieve full utilization of efficient operating capacity, suggests potential revenue growth.
  
• Significant investments in strategic bolt-on acquisitions, such as Ironwood Midstream Energy and Midway Pipeline, promise to expand the integrated asset base and enhance operational synergies, likely positively impacting net margins and earnings.
  
• The return of capital framework acceleration, with a 20% increase in distributions for 2025, demonstrates improved cash flow management and shareholder return strategy, possibly leading to better EPS.
  
• Increase in utilization rates and volumes on long-haul assets and Permian gathering joint ventures indicate improved operational efficiencies and higher throughput, contributing to EBITDA growth.
  
• Capital discipline with planned investments in growth projects, such as Fort Saskatchewan debottleneck project, while maintaining a robust balance sheet, highlights financial stability conducive to sustaining net margins and earnings growth.

Plains All American Pipeline Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Plains All American Pipeline's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.0% today to 2.4% in 3 years time.
• Analysts expect earnings to reach $1.4 billion (and earnings per share of $1.81) by about March 2028, up from $514.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.6 billion in earnings, and the most bearish expecting $1.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, down from 27.3x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.7x.
• Analysts expect the number of shares outstanding to grow by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.45%, as per the Simply Wall St company report.

Plains All American Pipeline Future Earnings Per Share Growth

Risks

• The company's 2025 guidance includes slightly lower contributions from the NGL segment, which could impact overall revenue and EBITDA growth.
  
• The company faces the impact of the reset of certain long-haul contract tariffs that could step down in the second half of 2025, potentially affecting revenues and net margins.
  
• A recent arbitration panel ruled against the company for a $175 million insurance claim, requiring a $225 million write-off, negatively impacting earnings and free cash flow.
  
• The acquisition-led growth strategy might not immediately realize expected synergies, which could impact net margins and earnings if integration experiences delays or inefficiencies.
  
• Potential tariff impositions could adversely affect the NGL and crude businesses, impacting financials if not fully encompassed within current guidance assumptions.

Valuation

• The analysts have a consensus price target of $21.857 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 $25.0, and the most bearish reporting a price target of just $19.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $56.5 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 8.5%.
• Given the current share price of $19.94, the analyst price target of $21.86 is 8.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.