Plains All American Pipeline LP PAA is trading above its 50-day and 200-day simple moving average (SMA), signaling a bullish trend. The oil and gas midstream firm has some new projects in the resource-rich regions. After completing its multi-year buildout, the firm remained disciplined in its capital spending and is focused on developing assets that will result in high returns.

The partnership is poised to benefit from the rise in production from the Permian region with a gradual revival in oil and natural gas demand.

PAA's SMA 50 and 200-day

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The 50-day and 200-day SMAs are a key indicator for traders and analysts to identify support and resistance levels. It is considered particularly important as this is the first marker of a stock’s uptrend or downtrend.

The PAA stock closed at $20.48 on Feb. 21. In the past three months, the firm’s units have gained 14.1% against the industry’s 1% decline. PAA has also outperformed the S&P 500’s growth of 0.8% and the Zacks Oil-Energy sector’s decline of 4.4%.

Price Performance (Three Months)

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Should you consider adding PAA to your portfolio only based on positive price movements? Let’s delve deeper and find out factors that can help investors decide whether it is a good entry point to add PAA stock to their portfolio.

Contributing Factors to PAA Stock’s Performance

Plains All American Pipeline maintains a systematic capital investment strategy to expand its operations through organic growth initiatives. The firm is also making strategic acquisitions to expand its operations in the United States.

In 2024, the firm closed all three previously announced bolt-on acquisitions for approximately $670 million net to PAA, including the acquisition of Ironwood Midstream Energy. The firm continues pursuing a long runway of synergistic and strong return bolt-on opportunities across the asset footprint. Its numerous joint ventures, partnerships and joint ownership agreements provide it with robust opportunities.

Plains All American Pipeline is gradually expanding operations in the Permian Basin to capitalize on the rising demand for midstream services. Permian crude production will increase by nearly 6.7 million barrels a day by the end of 2025. The rising volumes in the Basin set up for a very constructive long-haul market over the next several years as volumes growth will allow PAA's to make full utilization of its efficient operating capacity.

Plains All American Pipeline remains focused on disciplined capital investments, anticipating full-year 2025 investment and maintenance capital of $400 million and $240 million, respectively. It is currently focusing on smaller projects to improve returns across its system.

The firm is also working diligently to expand its operation outside the Permian Basin through acquisitions. In the last couple of years, PAA has made some acquisitions outside the Permian Basin, including recent ones like Midway Pipeline and Ironwood gathering system, and continues to explore and develop additional bolt-on opportunities.

PAA’s Cash Distribution Rising at a Steady Pace

Plains All American Pipeline’s management announced an increase in its annual cash distribution by 25 cents per common unit for 2025 taking the annual distribution rate to $1.52 per unit. The new cash distribution rate reflects an increase of 20% compared with the fourth quarter of 2024.

PAA’s management has raised distribution rates five times in the past five years, and the current payout ratio is 84%. This firm aims for a multi-year sustainable distribution growth and has plans to raise its distribution per unit by 15 cents annually until 160% common unit coverage is reached.

PAA’s Earnings Estimates Moving North

The Zacks Consensus Estimate for Plains All American Pipeline’s 2025 and 2026 earnings per unit has increased 9.4% and 2%, respectively, in the past 60 days.

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PAA’s Units Are Trading at a Discount

Plains All American Pipeline’s units are somewhat inexpensive relative to its industry. PAA’s current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) is 9.68X compared with the industry average of 12.16X. This indicates that the firm is presently undervalued compared with its industry.

Another firm operating in this space, Energy Transfer LP ET, is trading at EV/EBITDA of 10.39X, at a discount compared with its industry.

Summing Up

Plains All American Pipeline, with its strong presence in Permian and expanding midstream operations in other regions in the United States, is poised to benefit from rising hydrocarbon production. The firm continues to expand its operation through bolt-on acquisitions and organic means.

PAA’s existing long-term contracts and contributions from organic and inorganic assets continue to boost the performance of this stock.

This can be a favorable entry point for investors, given the positive movement in earnings estimates and the firm trading at a discount. The company currently has a VGM Score of B, which indicates a strong performance. PAA is also trading above its 50-day and 200-day SMA. Investors can add this Zacks Rank #1 (Strong Buy) stock to their portfolio and enjoy the benefit of stable returns and rising cash distribution.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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