On Friday, Goldman Sachs adjusted its price target for Plains GP Holdings, L.P. (NASDAQ: NASDAQ:PAGP), increasing it to $16.00 from the previous $14.50. Despite the higher price target, the firm maintained its Sell rating on the company's stock.
The Goldman Sachs analyst cited several factors influencing this decision, including lower-than-anticipated earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first quarter of 2024 and a downward revision of the EBITDA estimate for the full year.
The analyst noted that Plains All American's first-quarter EBITDA is expected to be $695 million, which falls short of the consensus estimate of $714 million and the analyst's previous forecast of $720 million.
This shortfall is primarily attributed to weaker than expected crude volumes from the Permian Basin and a decrease in crude marketing contributions. For the entire year of 2024, the analyst has slightly revised the EBITDA estimate to $2,674 million, compared to the consensus estimate of $2,691 million and the firm's earlier projection of $2,669 million.
Goldman Sachs expressed concerns about the potential downside to future earnings estimates, particularly due to anticipated softer contributions from the Permian region.
While acknowledging the strong year-to-date performance of Plains All American's stock, which had risen by 19% compared to the American Midstream Partners Index's 7% increase, the analyst pointed out that the company's valuation might be overstretched. Growth prospects appear limited, and the free cash flow (FCF) differential is not as significant compared to peers.
The analyst also compared Plains All American's valuation with that of Energy Transfer (NYSE:ET), noting that Plains All American trades at approximately 8 times its projected EBITDA for 2025-2027, while Energy Transfer, which has a larger scale and more diversified asset mix, trades at around 7.5 times EBITDA for the same period.
Despite the increase in Plains GP Holdings' price target, the Sell rating reflects ongoing concerns about the company's growth and valuation.
InvestingPro Insights
In light of Goldman Sachs' recent analysis of Plains GP Holdings, L.P. (NASDAQ: PAGP), it's worth considering additional insights from InvestingPro. The company is currently trading near its 52-week high, with the price at 99.39% of this peak, suggesting a strong market confidence in the stock. This aligns with the robust year-to-date price total return of 25.55% as of the latest data, reflecting a notable outperformance in the market.
InvestingPro Tips indicate a high shareholder yield and a consistent history of dividend payments over the last 11 years, which may appeal to income-focused investors. The dividend yield stands at an attractive 6.46%, complemented by a significant dividend growth of 45.98% over the last twelve months. This could be particularly appealing given the current market conditions where investors are seeking yield. On the flip side, the high P/E ratio of 18.56 relative to the near-term earnings growth suggests that the stock might be trading at a premium.
For investors looking to delve deeper into Plains GP Holdings' performance and potential, InvestingPro offers additional tips, such as the stock's low price volatility and its status as a prominent player in the Oil, Gas & Consumable Fuels industry. To explore these insights further and to access more exclusive analysis, consider subscribing to InvestingPro. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Currently, there are 13 additional InvestingPro Tips available for PAGP, providing a comprehensive outlook on the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.