Director Elvira Scotto of RBC Capital Markets views Plains All American Pipeline, L.P. (PAA) as a core holding for MLP investors, as the company has flexible midstream assets that connect it to multiple markets. Scotto forecasts Plains All American to spend a significant amount in growth projects over the next year, which will drive cash flow and distribution growth.
“Plains has a very well-positioned asset base with flexible midstream assets. Its footprint spans across growing resource plays, including the Permian Basin, the Bakken Shale, the Mississippian Lime and the Granite Wash. Plains has a wide range of flexible crude oil assets, including pipelines, rail loading and offloading facilities, barges, trucks, etc., that connect to multiple markets,” Scotto said.
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Scotto believes Plains All American’s sizable growth project backlog will drive cash flow in the years to come. Other characteristics such as a strong balance sheet and distribution coverage are behind her pick for Plains All American as a core holding.
“[Plains] plans to spend about $1.6 billion to $1.8 billion in growth projects this year, which we believe will drive cash flow growth for years to come. In addition, given its footprint, we believe Plains can continue to identify growth projects, and we forecast growth capex of more than $1 billion next year,” Scotto said.
“Plains also has a strong investment grade balance sheet and strong distribution coverage, which we believe well-positions it to fund its organic growth capex. We forecast about 10% distribution growth for Plains over the next few years,” Scotto adds.
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