Plains Earnings: Higher NGL Volumes Lead to Guidance Boost and Higher Fair Value Estimate

Plains’ second-quarter earnings were a bit better than we expected, primarily because of higher natural gas liquids volumes and wider spreads. The higher volumes make sense given the strength in Permian gas volumes, which would drive natural gas liquids volumes since natural gas liquids are a byproduct of gas. Plains management boosted its 2024 guidance by $75 million to a midpoint of $2.75 billion. Given the boost and cash flows earned, we expect to increase our fair value estimate by $1 to $19. Our no-moat rating is unchanged. Overall adjusted EBITDA improved 13% to $674 million year over year, as the natural gas liquids segment EBITDA jumped over 50% over the same time frame.Despite the earnings boost, expected free cash flow for 2024 as calculated by Plains management of $1.55 billion remains unchanged, as the incremental dollars are largely flowing to bolt-on deals. However, we view the $535 million investment in eight deals since 2022 highly favorably, given the tight linkage with existing assets largely in the Permian. We don’t think it is a heavy lift for Plains to generate attractive returns here. Plains’ free cash flow yield still remains very attractive at around 13% by our estimates.