Energy midstream companies are doing well this year as demand for oil and gas continues to rise. While investors often focus on Energy Transfer (ET) and Enterprise Products Partners (EPD), Plains All American Pipeline (PAA) is doing much better this year.
Plains All American Pipeline is beating its rivals
PAA is a top American company in the energy industry. Unlike majors like ExxonMobil and Chevron, it gathers and transports crude oil for its clients. It does that using its 20,405 miles of crude oil pipelines and gathering systems, 76 million barrels of oil storage facilities, and 42 million barrels of active, above-ground tank capacity.
Plains All American Pipeline’s business has done better than Energy Transfer and Enterprise Product Partners this year. It has a forward dividend yield of 7% compared with ET’s 6.64% and 6.19%. Its four-year average yield of 6.90% is also higher than the two companies.
The stock is also doing better after rising by 40% this year compared to EPD’s and ET’s 20% and 31%.
This performance is mostly because of its ongoing transition. For example, the company completed the divestiture of its Canadian NGL business to Keyera Corp in a $3.3 billion deal. By doing so, the company used the funds to reduce its outstanding debt, which will help its leverage ratio move toward the middle of 3.25 to 3.75 times.
Additionally, the divestiture helped the company focused on crude oil midstream operations. Its remaining assets now span from Canada to the US Gulf Coast.
The company also decided to acquire Powder River Basin assets from Silver Creek Midstream. This buyout has given it about 600 miles of crude oil gathering and transmission and more than 350,000 barrels per day of operating capacity. It also gives it about 1.2 million barrels of operational storage. The deal is expected to close this quarter.
Plains All American Pipeline also acquired Cactus Pipeline, which gave it the capacity to transport 390,000 barrels of oil per day. The two companies have continued to see synergies after the buyout.
Its recent results showed that its net income jumped to $1.83 billion in the second quarter, up from $210 million a year earlier. Its net cash provided by operating activities rose by $956 million from $694 million.
Plains All American Pipeline stock analysis
The daily chart shows that the PAA stock price has been in a strong upward trend in the past few years. Most recently, it has formed an ascending channel and is now along its lower side.
The stock has continued rising above the 50-day and 100-day Exponential Moving Averages (EMA). Also, the stock has remained above the Supertrend indicator.
Therefore, there are two potential scenarios. It may rebound as bulls target the upper side of the channel at around $26.45. On the other hand, a drop below the lower side of the channel will point to more downside, potentially to the ultimate support level of the Murrey Math Lines tool at $21.88.