Plains All American Pipeline, L.P. (PAA) is expected to see double digit earnings growth in 2011. Yet the energy transporter also trades with a P/S ratio of just 0.3. This Zacks #1 Rank (strong buy) is a rare company that has both growth and value characteristics.
Plains All American provides transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas and other natural gas related petroleum products (“LPG”) in North America.
The company is a master limited partnership (“MLP”) and handles over 3 million barrels a day of crude oil, refined products and LPG.
Plains All American Doubled Earnings in the Second Quarter
On Aug 3, Plains All American reported its second quarter results and easily surprised on the Zacks Consensus by 42%. Earnings per unit were $1.12 compared to the consensus of just 79 cents. The partnership made 65 cents per limited partner unit in the year ago quarter.
All of its segments had a strong quarter, especially the supply and logistics segment. Revenue in the largest segment, transportation, rose 11.9% in the quarter compared to last year.
Increased EBITDA Guidance for 2011
Given the better-than-expected results in the first half of the year and what the partnership considers to be a “favorable outlook” for the second-half, it raised its 2011 adjusted EBITDA guidance 13% to $1.38 billion from its guidance provided at the beginning of the year of $1.23 billion.
The 2011 Zacks Consensus Estimate Jumped
Given the bullishness of the partnership, it’s not surprising that the analysts have raised full year earnings per unit guidance.
The 2011 Zacks Consensus Estimate rose to $3.98 from $3.78 in the last 30 days.
This is earnings growth of 31% compared to the $3.04 it made in 2010.
Juicy Dividend
Because its an MLP, the partnership distributes its available cash every quarter to unitholders.
Since it went public in 1998, it has raised its quarterly distribution by 118%. When everyone else was panicking during the Great Recession and slashing its dividend payout, Plains All American did not cut it.
Currently the dividend is yielding a hefty 6.6%, which is just slightly higher than the 6.5% average of the industry.
Volatility But No Huge Sell Off
Plains shares have been see-sawing for the past few months so August’s big market sell off, while it impacted the shares, didn’t crush them down like it did for a lot of other companies.
Sill, the recent share weakness presents an opportunity.
The partnership is trading just under my cut-off for a value stock, at 14.9x forward estimates. However, that is well under what its peers are trading at, as they are averaging a P/E of 19.5.
But some of its other fundamentals are cheaper, including its price-to-book ratio of just 1.6, well under the value cut off of 3.0.
The P/S ratio of 0.3 also indicates value as it’s well below 1.0 which usually indicates a company is undervalued.
If you’re looking for income but also want value, then Plains All American is a stock to consider.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.
