We See a Wider Moat for Plains
The dominant position in the Permian can't be replicated.
After taking a deeper dive into the Plains entities, we have upgraded our economic moat rating for Plains All American Pipeline (PAA) and its general partner, Plains GP Holdings (PAGP), to wide from narrow.
Our fair value estimate moves to $26 from $24 for both entities as a result of extending our period of excess returns over a longer time frame. We see both entities as about 20% undervalued; in our view, this reflects a lack of appreciation for growth in Permian volumes over the next few years, a recovery in supply and logistics margins to normalized levels from today’s trough levels, and improved utilization of Plains’ assets in general across the business as a result of the expiration of minimum volume commitment contracts that have distorted pipeline flows.
Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.