A Look At Plains All American (PAA) Valuation After Its US$3.3b Canadian Asset Sale

Plains All American Pipeline (PAA) has closed the sale of its Canadian natural gas liquids business to Keyera Corp, generating about US$3.3 billion in net cash and sharpening its focus on crude oil midstream operations.

See our latest analysis for Plains All American Pipeline.

The sale news lands at a time when momentum in PAA’s units has been building, with a 1-month share price return of 8.94% and a 1-year total shareholder return of 44.22%, reinforcing a strong multi year run.

If this type of balance sheet reshaping has your attention, it could be a good moment to see which other infrastructure focused stocks are moving the needle in power and transmission by checking out 35 power grid technology and infrastructure stocks

With units near analysts’ average price target and a high intrinsic value score suggesting a steep discount, the key question now is simple: Is PAA still undervalued, or are markets already pricing in the company’s next phase of growth?

Most Popular Narrative: 2% Overvalued

With Plains All American Pipeline closing at $22.90 against a narrative fair value of $22.56, the current price sits slightly above that framework and puts the focus on what is driving those assumptions.

The analysts have a consensus price target of $22.56 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 $26.0, and the most bearish reporting a price target of just $18.0.

Read the complete narrative.

Want to see what sits underneath that tight gap between fair value and price? The narrative leans on steady revenue, rising margins and a reset earnings multiple that might surprise you.

Result: Fair Value of $22.56 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this narrative can crack if crude focused volumes disappoint or if higher growth capex and acquisitions fail to produce the earnings uplift analysts are penciling in.

Find out about the key risks to this Plains All American Pipeline narrative.

Another View: Cash Flows Tell a Different Story

While the analyst narrative frames Plains All American Pipeline as about 2% overvalued at $22.90 versus a $22.56 fair value, the SWS DCF model points in a very different direction. On that cash flow view, PAA at $22.90 trades well below an estimated fair value of $58.53. This implies a wide upside gap that raises questions about which framework investors should lean on.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Plains All American Pipeline for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment this mixed, it makes sense to move quickly, review the key risks and potential rewards yourself, and decide where you stand with 3 key rewards and 2 important warning signs

Looking for more investment ideas?

If you stop here, you could miss stocks that better match your goals, so give yourself options and see what else lines up with your checklist.

• Spot potential mispricings early by scanning 51 high quality undervalued stocks for companies that combine quality fundamentals with compressed valuations.
• Build steadier income potential by reviewing 13 dividend fortresses that offer higher yields backed by underlying business strength.
• Protect your downside first by checking 65 resilient stocks with low risk scores that score well on resilience and balance sheet health before you commit fresh capital.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com