Intrinsic value of Plains All American Pipeline - PAA

Previous Close

$20.22

  Intrinsic Value

$4.39

stock screener

  Rating & Target

str. sell

-78%

Previous close

$20.22

 
Intrinsic value

$4.39

 
Up/down potential

-78%

 
Rating

str. sell

We calculate the intrinsic value of PAA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -12.83
  22.80
  21.02
  19.42
  17.98
  16.68
  15.51
  14.46
  13.51
  12.66
  11.90
  11.21
  10.59
  10.03
  9.52
  9.07
  8.66
  8.30
  7.97
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
Revenue, $m
  20,182
  24,783
  29,993
  35,817
  42,256
  49,303
  56,950
  65,185
  73,994
  83,364
  93,281
  103,734
  114,715
  126,218
  138,240
  150,781
  163,846
  177,442
  191,582
  206,279
  221,553
  237,426
  253,921
  271,068
  288,898
  307,445
  326,746
  346,841
  367,773
  389,588
  412,333
Variable operating expenses, $m
 
  22,500
  27,180
  32,412
  38,196
  44,528
  51,398
  58,796
  66,710
  75,127
  84,036
  93,193
  103,059
  113,392
  124,193
  135,459
  147,197
  159,412
  172,114
  185,319
  199,040
  213,300
  228,119
  243,524
  259,542
  276,204
  293,544
  311,597
  330,402
  350,000
  370,434
Fixed operating expenses, $m
 
  869
  891
  913
  936
  959
  983
  1,008
  1,033
  1,059
  1,086
  1,113
  1,140
  1,169
  1,198
  1,228
  1,259
  1,290
  1,323
  1,356
  1,390
  1,424
  1,460
  1,496
  1,534
  1,572
  1,611
  1,652
  1,693
  1,735
  1,779
Total operating expenses, $m
  19,188
  23,369
  28,071
  33,325
  39,132
  45,487
  52,381
  59,804
  67,743
  76,186
  85,122
  94,306
  104,199
  114,561
  125,391
  136,687
  148,456
  160,702
  173,437
  186,675
  200,430
  214,724
  229,579
  245,020
  261,076
  277,776
  295,155
  313,249
  332,095
  351,735
  372,213
Operating income, $m
  994
  1,415
  1,922
  2,492
  3,123
  3,816
  4,569
  5,381
  6,251
  7,178
  8,159
  9,428
  10,516
  11,657
  12,849
  14,093
  15,390
  16,740
  18,145
  19,605
  21,123
  22,702
  24,342
  26,048
  27,822
  29,669
  31,591
  33,592
  35,678
  37,852
  40,120
EBITDA, $m
  1,488
  2,219
  2,847
  3,550
  4,330
  5,184
  6,113
  7,115
  8,188
  9,329
  10,539
  11,814
  13,155
  14,560
  16,028
  17,561
  19,159
  20,822
  22,551
  24,350
  26,219
  28,162
  30,182
  32,283
  34,467
  36,740
  39,106
  41,570
  44,137
  46,813
  49,604
Interest expense (income), $m
  450
  460
  598
  753
  926
  1,118
  1,328
  1,556
  1,802
  2,064
  2,343
  2,639
  2,950
  3,278
  3,620
  3,979
  4,352
  4,742
  5,147
  5,568
  6,006
  6,461
  6,934
  7,426
  7,937
  8,468
  9,021
  9,596
  10,195
  10,818
  11,468
Earnings before tax, $m
  755
  955
  1,325
  1,739
  2,197
  2,698
  3,241
  3,825
  4,450
  5,113
  5,815
  6,789
  7,566
  8,379
  9,229
  10,115
  11,038
  11,999
  12,998
  14,037
  15,117
  16,240
  17,408
  18,622
  19,886
  21,201
  22,570
  23,997
  25,483
  27,034
  28,652
Tax expense, $m
  25
  258
  358
  470
  593
  728
  875
  1,033
  1,201
  1,381
  1,570
  1,833
  2,043
  2,262
  2,492
  2,731
  2,980
  3,240
  3,510
  3,790
  4,082
  4,385
  4,700
  5,028
  5,369
  5,724
  6,094
  6,479
  6,881
  7,299
  7,736
Net income, $m
  726
  697
  967
  1,269
  1,604
  1,969
  2,366
  2,792
  3,248
  3,733
  4,245
  4,956
  5,523
  6,117
  6,737
  7,384
  8,058
  8,759
  9,489
  10,247
  11,036
  11,855
  12,708
  13,594
  14,517
  15,477
  16,476
  17,517
  18,603
  19,735
  20,916

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  47
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  24,210
  29,681
  35,920
  42,895
  50,605
  59,046
  68,204
  78,066
  88,616
  99,837
  111,713
  124,232
  137,384
  151,159
  165,556
  180,576
  196,223
  212,506
  229,439
  247,041
  265,334
  284,342
  304,097
  324,633
  345,986
  368,197
  391,312
  415,378
  440,447
  466,572
  493,812
Adjusted assets (=assets-cash), $m
  24,163
  29,681
  35,920
  42,895
  50,605
  59,046
  68,204
  78,066
  88,616
  99,837
  111,713
  124,232
  137,384
  151,159
  165,556
  180,576
  196,223
  212,506
  229,439
  247,041
  265,334
  284,342
  304,097
  324,633
  345,986
  368,197
  391,312
  415,378
  440,447
  466,572
  493,812
Revenue / Adjusted assets
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
  0.835
Average production assets, $m
  13,936
  17,101
  20,695
  24,714
  29,156
  34,019
  39,296
  44,978
  51,056
  57,521
  64,364
  71,577
  79,154
  87,090
  95,385
  104,039
  113,054
  122,435
  132,192
  142,333
  152,872
  163,824
  175,206
  187,037
  199,340
  212,137
  225,455
  239,320
  253,763
  268,816
  284,510
Working capital, $m
  -392
  1,561
  1,890
  2,256
  2,662
  3,106
  3,588
  4,107
  4,662
  5,252
  5,877
  6,535
  7,227
  7,952
  8,709
  9,499
  10,322
  11,179
  12,070
  12,996
  13,958
  14,958
  15,997
  17,077
  18,201
  19,369
  20,585
  21,851
  23,170
  24,544
  25,977
Total debt, $m
  11,839
  15,324
  19,305
  23,755
  28,674
  34,059
  39,902
  46,194
  52,925
  60,084
  67,661
  75,648
  84,039
  92,828
  102,013
  111,595
  121,578
  131,967
  142,770
  154,000
  165,671
  177,798
  190,402
  203,504
  217,127
  231,298
  246,045
  261,399
  277,393
  294,061
  311,440
Total liabilities, $m
  15,451
  18,936
  22,917
  27,367
  32,286
  37,671
  43,514
  49,806
  56,537
  63,696
  71,273
  79,260
  87,651
  96,440
  105,625
  115,207
  125,190
  135,579
  146,382
  157,612
  169,283
  181,410
  194,014
  207,116
  220,739
  234,910
  249,657
  265,011
  281,005
  297,673
  315,052
Total equity, $m
  8,759
  10,744
  13,003
  15,528
  18,319
  21,375
  24,690
  28,260
  32,079
  36,141
  40,440
  44,972
  49,733
  54,720
  59,931
  65,368
  71,033
  76,927
  83,057
  89,429
  96,051
  102,932
  110,083
  117,517
  125,247
  133,287
  141,655
  150,367
  159,442
  168,899
  178,760
Total liabilities and equity, $m
  24,210
  29,680
  35,920
  42,895
  50,605
  59,046
  68,204
  78,066
  88,616
  99,837
  111,713
  124,232
  137,384
  151,160
  165,556
  180,575
  196,223
  212,506
  229,439
  247,041
  265,334
  284,342
  304,097
  324,633
  345,986
  368,197
  391,312
  415,378
  440,447
  466,572
  493,812
Debt-to-equity ratio
  1.352
  1.430
  1.480
  1.530
  1.570
  1.590
  1.620
  1.630
  1.650
  1.660
  1.670
  1.680
  1.690
  1.700
  1.700
  1.710
  1.710
  1.720
  1.720
  1.720
  1.720
  1.730
  1.730
  1.730
  1.730
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
Adjusted equity ratio
  0.361
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  726
  697
  967
  1,269
  1,604
  1,969
  2,366
  2,792
  3,248
  3,733
  4,245
  4,956
  5,523
  6,117
  6,737
  7,384
  8,058
  8,759
  9,489
  10,247
  11,036
  11,855
  12,708
  13,594
  14,517
  15,477
  16,476
  17,517
  18,603
  19,735
  20,916
Depreciation, amort., depletion, $m
  494
  804
  924
  1,058
  1,206
  1,368
  1,544
  1,734
  1,936
  2,152
  2,380
  2,386
  2,638
  2,903
  3,180
  3,468
  3,768
  4,081
  4,406
  4,744
  5,096
  5,461
  5,840
  6,235
  6,645
  7,071
  7,515
  7,977
  8,459
  8,961
  9,484
Funds from operations, $m
  240
  1,501
  1,891
  2,328
  2,810
  3,338
  3,910
  4,526
  5,185
  5,885
  6,625
  7,342
  8,162
  9,020
  9,916
  10,852
  11,826
  12,840
  13,895
  14,992
  16,131
  17,316
  18,548
  19,829
  21,161
  22,548
  23,991
  25,495
  27,062
  28,695
  30,400
Change in working capital, $m
  -486
  290
  328
  367
  406
  444
  482
  519
  555
  590
  625
  659
  692
  725
  757
  790
  823
  857
  891
  926
  962
  1,000
  1,039
  1,080
  1,123
  1,168
  1,216
  1,266
  1,319
  1,374
  1,433
Cash from operations, $m
  726
  1,212
  1,563
  1,961
  2,404
  2,894
  3,428
  4,007
  4,630
  5,294
  6,000
  6,684
  7,470
  8,295
  9,159
  10,062
  11,003
  11,984
  13,004
  14,066
  15,169
  16,316
  17,509
  18,749
  20,038
  21,379
  22,775
  24,229
  25,743
  27,321
  28,967
Maintenance CAPEX, $m
  0
  -465
  -570
  -690
  -824
  -972
  -1,134
  -1,310
  -1,499
  -1,702
  -1,917
  -2,145
  -2,386
  -2,638
  -2,903
  -3,180
  -3,468
  -3,768
  -4,081
  -4,406
  -4,744
  -5,096
  -5,461
  -5,840
  -6,235
  -6,645
  -7,071
  -7,515
  -7,977
  -8,459
  -8,961
New CAPEX, $m
  -1,334
  -3,165
  -3,595
  -4,019
  -4,443
  -4,863
  -5,277
  -5,682
  -6,078
  -6,465
  -6,843
  -7,213
  -7,577
  -7,937
  -8,295
  -8,653
  -9,015
  -9,382
  -9,756
  -10,141
  -10,539
  -10,952
  -11,382
  -11,831
  -12,303
  -12,797
  -13,318
  -13,866
  -14,443
  -15,052
  -15,695
Cash from investing activities, $m
  -1,273
  -3,630
  -4,165
  -4,709
  -5,267
  -5,835
  -6,411
  -6,992
  -7,577
  -8,167
  -8,760
  -9,358
  -9,963
  -10,575
  -11,198
  -11,833
  -12,483
  -13,150
  -13,837
  -14,547
  -15,283
  -16,048
  -16,843
  -17,671
  -18,538
  -19,442
  -20,389
  -21,381
  -22,420
  -23,511
  -24,656
Free cash flow, $m
  -547
  -2,418
  -2,601
  -2,748
  -2,862
  -2,941
  -2,982
  -2,985
  -2,948
  -2,872
  -2,760
  -2,675
  -2,493
  -2,280
  -2,039
  -1,771
  -1,480
  -1,166
  -833
  -482
  -114
  269
  666
  1,077
  1,501
  1,937
  2,386
  2,848
  3,322
  3,810
  4,311
Issuance/(repayment) of debt, $m
  -186
  3,532
  3,980
  4,450
  4,920
  5,385
  5,843
  6,292
  6,731
  7,159
  7,577
  7,987
  8,390
  8,789
  9,185
  9,582
  9,983
  10,389
  10,804
  11,230
  11,670
  12,128
  12,604
  13,102
  13,623
  14,171
  14,747
  15,354
  15,994
  16,668
  17,379
Issuance/(repurchase) of shares, $m
  2,365
  1,288
  1,291
  1,255
  1,188
  1,086
  950
  778
  571
  329
  54
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2,190
  4,820
  5,271
  5,705
  6,108
  6,471
  6,793
  7,070
  7,302
  7,488
  7,631
  7,987
  8,390
  8,789
  9,185
  9,582
  9,983
  10,389
  10,804
  11,230
  11,670
  12,128
  12,604
  13,102
  13,623
  14,171
  14,747
  15,354
  15,994
  16,668
  17,379
Total cash flow (excl. dividends), $m
  1,647
  2,403
  2,670
  2,958
  3,245
  3,530
  3,810
  4,085
  4,354
  4,616
  4,872
  5,312
  5,897
  6,509
  7,147
  7,811
  8,503
  9,222
  9,970
  10,748
  11,556
  12,396
  13,270
  14,179
  15,124
  16,108
  17,134
  18,202
  19,316
  20,478
  21,691
Retained Cash Flow (-), $m
  -878
  -1,985
  -2,258
  -2,525
  -2,791
  -3,055
  -3,315
  -3,570
  -3,819
  -4,062
  -4,299
  -4,532
  -4,761
  -4,987
  -5,212
  -5,437
  -5,664
  -5,895
  -6,130
  -6,372
  -6,622
  -6,881
  -7,151
  -7,434
  -7,730
  -8,041
  -8,368
  -8,712
  -9,075
  -9,457
  -9,861
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  417
  412
  433
  454
  475
  495
  515
  535
  554
  572
  781
  1,137
  1,522
  1,935
  2,374
  2,839
  3,328
  3,840
  4,376
  4,934
  5,515
  6,119
  6,745
  7,394
  8,068
  8,766
  9,490
  10,241
  11,021
  11,830
Discount rate, %
 
  9.50
  9.98
  10.47
  11.00
  11.55
  12.12
  12.73
  13.37
  14.04
  14.74
  15.47
  16.25
  17.06
  17.91
  18.81
  19.75
  20.74
  21.77
  22.86
  24.01
  25.21
  26.47
  27.79
  29.18
  30.64
  32.17
  33.78
  35.47
  37.24
  39.10
PV of cash for distribution, $m
 
  381
  341
  321
  299
  275
  249
  223
  196
  170
  145
  160
  187
  196
  193
  179
  159
  135
  111
  88
  67
  49
  35
  24
  16
  10
  6
  4
  2
  1
  1
Current shareholders' claim on cash, %
  100
  91.9
  85.8
  81.1
  77.5
  74.9
  72.9
  71.6
  70.7
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3
  70.3

Plains All American Pipeline, L.P. owns and operates midstream energy infrastructure and provide logistics services for crude oil, natural gas liquids (NGL), natural gas and refined products. The Company operates through three segments: Transportation, Facilities, and Supply and Logistics. The Company's transportation segment operations consist of activities associated with transporting crude oil and NGL on pipelines, gathering systems, trucks and barges. Its Facilities segment operations consist of activities associated with providing storage, terminaling and throughput services for crude oil, refined products, NGL and natural gas, as well as NGL fractionation and isomerization services and natural gas and condensate processing services. Its supply and logistics segment operations consist of the merchant-related activities, including the purchase of the United States and Canadian crude oil at the wellhead, the bulk purchase of crude oil at pipeline, terminal and rail facilities.

FINANCIAL RATIOS  of  Plains All American Pipeline (PAA)

Valuation Ratios
P/E Ratio 18.6
Price to Sales 0.7
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 18.6
Price to Free Cash Flow -22.3
Growth Rates
Sales Growth Rate -12.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.8%
Cap. Spend. - 3 Yr. Gr. Rate -3.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 115.6%
Total Debt to Equity 135.2%
Interest Coverage 3
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 6.2%
Return On Total Capital 3.6%
Ret/ On T. Cap. - 3 Yr. Avg. 5.6%
Return On Equity 8.7%
Return On Equity - 3 Yr. Avg. 12.5%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 8.8%
Gross Margin - 3 Yr. Avg. 7.7%
EBITDA Margin 8.4%
EBITDA Margin - 3 Yr. Avg. 7.2%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 4.8%
Pre-Tax Margin 3.7%
Pre-Tax Margin - 3 Yr. Avg. 3.9%
Net Profit Margin 3.6%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 3.3%
Eff/ Tax Rate - 3 Yr. Avg. 8.1%
Payout Ratio 224.1%

PAA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PAA stock intrinsic value calculation we used $20182 million for the last fiscal year's total revenue generated by Plains All American Pipeline. The default revenue input number comes from 2016 income statement of Plains All American Pipeline. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PAA stock valuation model: a) initial revenue growth rate of 22.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.5%, whose default value for PAA is calculated based on our internal credit rating of Plains All American Pipeline, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Plains All American Pipeline.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PAA stock the variable cost ratio is equal to 91%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $848 million in the base year in the intrinsic value calculation for PAA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.9% for Plains All American Pipeline.

Corporate tax rate of 27% is the nominal tax rate for Plains All American Pipeline. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PAA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PAA are equal to 69%.

Life of production assets of 33 years is the average useful life of capital assets used in Plains All American Pipeline operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PAA is equal to 6.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $8759 million for Plains All American Pipeline - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 724.865 million for Plains All American Pipeline is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Plains All American Pipeline at the current share price and the inputted number of shares is $14.7 billion.

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▶ Plains All Americans longtime CEO to retire, successor named   [Nov-06-17 09:10PM  American City Business Journals]
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▶ We See a Wider Moat for Plains   [Oct-20-17 07:00AM  Morningstar]
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▶ Plains All American Pipeline to cut distribution, take other steps to reduce debt   [Aug-26-17 01:15AM  American City Business Journals]
▶ [$$] Plains All American Pipeline to Cut $1.4 Billion in Debt   [Aug-25-17 10:49PM  The Wall Street Journal]
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Financial statements of PAA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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