Buy Recommendation: Plains GP Holdings LP
Today, I am recommending the purchase of Plains GP Holdings LP (NYSE:PAGP) shares. This company owns the general partner incentive distribution rights for Plains All American Pipeline, L.P. (NYSE:PAA), a large cap, investment grade pipeline MLP.
With the drop in crude oil prices, Plains All American Pipelines has stopped growing its distribution, so both the PAA and PAGP quarterly payouts have been level for the last three quarters. Management has committed to sustaining the dividends until the energy sector produces some sort of price and production recovery.
The gains in WTI crude from the mid-$20’s to the mid-$40’s resulted in the PAGP share price climbing from a February low of $5.30 to a recent high of $10.20. Now, crude prices have dropped for a couple of days and the PAGP price is back down to $8.60.
The two Plains companies report earnings tomorrow, May 5th after the market closes. Reasonably good numbers combined with some positive guidance could push share prices higher as early as Thursday. If not, the PAGP share price will rise in anticipation of the next dividend payment in August.
With these facts in mind, I am recommending a purchase of PAGP today and selling at a target price of $10.00 per share. The result would be a 16% short-term gain. Based on today’s closing value, I will set our actual target at 15% above the PAGP closing price.
Recommendation: Buy PAGP at a maximum price of $9.00 per share.