Intrinsic value of Plains All American Pipeline - PAA

Previous Close

$19.01

  Intrinsic Value

$7.39

stock screener

  Rating & Target

str. sell

-61%

  Value-price divergence*

-101%

Previous close

$19.01

 
Intrinsic value

$7.39

 
Up/down potential

-61%

 
Rating

str. sell

 
Value-price divergence*

-101%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 13.1

 

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
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  20,182
  32,291
  49,890
  74,610
  108,256
  152,733
  209,973
  281,845
  370,081
  476,204
  601,485
  746,907
  913,166
  1,100,672
  1,309,582
  1,539,836
  1,791,199
  2,063,311
  2,355,733
  2,667,990
  2,999,613
  3,350,169
  3,719,292
  4,106,703
  4,512,224
  4,935,793
  5,377,469
  5,837,436
  6,316,003
  6,813,604
  7,330,795
Variable operating expenses, $m
 
  29,244
  45,055
  67,263
  97,490
  137,448
  188,871
  253,440
  332,710
  428,049
  540,600
  671,011
  820,375
  988,828
  1,176,510
  1,383,367
  1,609,188
  1,853,649
  2,116,357
  2,396,884
  2,694,809
  3,009,744
  3,341,359
  3,689,403
  4,053,717
  4,434,246
  4,831,042
  5,244,269
  5,674,207
  6,121,244
  6,585,882
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
  30,113
  45,946
  68,176
  98,426
  138,407
  189,854
  254,448
  333,743
  429,108
  541,686
  672,124
  821,515
  989,997
  1,177,708
  1,384,595
  1,610,447
  1,854,939
  2,117,680
  2,398,240
  2,696,199
  3,011,168
  3,342,819
  3,690,899
  4,055,251
  4,435,818
  4,832,653
  5,245,921
  5,675,900
  6,122,979
  6,587,661
Operating income, $m
  994
  2,178
  3,944
  6,434
  9,830
  14,326
  20,118
  27,397
  36,338
  47,096
  59,800
  74,784
  91,650
  110,675
  131,874
  155,241
  180,753
  208,372
  238,054
  269,750
  303,414
  339,001
  376,473
  415,803
  456,973
  499,975
  544,816
  591,515
  640,103
  690,624
  743,135
EBITDA, $m
  1,488
  3,155
  5,326
  8,384
  12,554
  18,073
  25,182
  34,114
  45,084
  58,283
  73,868
  91,963
  112,653
  135,990
  161,994
  190,657
  221,950
  255,828
  292,235
  331,114
  372,405
  416,055
  462,017
  510,258
  560,754
  613,498
  668,498
  725,776
  785,371
  847,337
  911,743
Interest expense (income), $m
  450
  460
  821
  1,346
  2,082
  3,085
  4,410
  6,116
  8,258
  10,887
  14,049
  17,783
  22,116
  27,070
  32,658
  38,883
  45,744
  53,235
  61,343
  70,057
  79,362
  89,244
  99,690
  110,690
  122,234
  134,318
  146,940
  160,101
  173,808
  188,068
  202,896
Earnings before tax, $m
  755
  1,718
  3,123
  5,088
  7,747
  11,241
  15,708
  21,281
  28,080
  36,209
  45,750
  57,001
  69,534
  83,605
  99,216
  116,358
  135,008
  155,137
  176,710
  199,693
  224,052
  249,757
  276,783
  305,114
  334,739
  365,657
  397,877
  431,414
  466,296
  502,556
  540,239
Tax expense, $m
  25
  464
  843
  1,374
  2,092
  3,035
  4,241
  5,746
  7,582
  9,776
  12,353
  15,390
  18,774
  22,573
  26,788
  31,417
  36,452
  41,887
  47,712
  53,917
  60,494
  67,434
  74,731
  82,381
  90,379
  98,727
  107,427
  116,482
  125,900
  135,690
  145,864
Net income, $m
  726
  1,254
  2,280
  3,714
  5,656
  8,206
  11,467
  15,535
  20,498
  26,432
  33,398
  41,611
  50,760
  61,031
  72,428
  84,941
  98,556
  113,250
  128,998
  145,776
  163,558
  182,322
  202,052
  222,733
  244,359
  266,930
  290,450
  314,932
  340,396
  366,866
  394,374

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
  38,672
  59,748
  89,354
  129,648
  182,914
  251,465
  337,539
  443,211
  570,304
  720,341
  894,500
  1,093,612
  1,318,170
  1,568,362
  1,844,115
  2,145,149
  2,471,031
  2,821,237
  3,195,198
  3,592,351
  4,012,178
  4,454,242
  4,918,207
  5,403,861
  5,911,129
  6,440,083
  6,990,942
  7,564,076
  8,160,005
  8,779,396
Adjusted assets (=assets-cash), $m
  24,163
  38,672
  59,748
  89,354
  129,648
  182,914
  251,465
  337,539
  443,211
  570,304
  720,341
  894,500
  1,093,612
  1,318,170
  1,568,362
  1,844,115
  2,145,149
  2,471,031
  2,821,237
  3,195,198
  3,592,351
  4,012,178
  4,454,242
  4,918,207
  5,403,861
  5,911,129
  6,440,083
  6,990,942
  7,564,076
  8,160,005
  8,779,396
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
  22,281
  34,424
  51,481
  74,697
  105,386
  144,881
  194,473
  255,356
  328,581
  415,024
  515,366
  630,084
  759,464
  903,612
  1,062,487
  1,235,927
  1,423,685
  1,625,456
  1,840,913
  2,069,733
  2,311,617
  2,566,312
  2,833,625
  3,113,434
  3,405,697
  3,710,454
  4,027,831
  4,358,042
  4,701,387
  5,058,249
Working capital, $m
  -392
  2,034
  3,143
  4,700
  6,820
  9,622
  13,228
  17,756
  23,315
  30,001
  37,894
  47,055
  57,529
  69,342
  82,504
  97,010
  112,846
  129,989
  148,411
  168,083
  188,976
  211,061
  234,315
  258,722
  284,270
  310,955
  338,781
  367,758
  397,908
  429,257
  461,840
Total debt, $m
  11,839
  21,061
  34,507
  53,396
  79,103
  113,087
  156,823
  211,738
  279,156
  360,242
  455,965
  567,079
  694,112
  837,380
  997,003
  1,172,933
  1,364,993
  1,572,906
  1,796,337
  2,034,924
  2,288,308
  2,556,158
  2,838,194
  3,134,204
  3,444,051
  3,767,689
  4,105,161
  4,456,609
  4,822,268
  5,202,471
  5,597,642
Total liabilities, $m
  15,451
  24,673
  38,119
  57,008
  82,715
  116,699
  160,435
  215,350
  282,768
  363,854
  459,577
  570,691
  697,724
  840,992
  1,000,615
  1,176,545
  1,368,605
  1,576,518
  1,799,949
  2,038,536
  2,291,920
  2,559,770
  2,841,806
  3,137,816
  3,447,663
  3,771,301
  4,108,773
  4,460,221
  4,825,880
  5,206,083
  5,601,254
Total equity, $m
  8,759
  13,999
  21,629
  32,346
  46,932
  66,215
  91,030
  122,189
  160,442
  206,450
  260,763
  323,809
  395,887
  477,177
  567,747
  667,570
  776,544
  894,513
  1,021,288
  1,156,662
  1,300,431
  1,452,409
  1,612,436
  1,780,391
  1,956,198
  2,139,829
  2,331,310
  2,530,721
  2,738,195
  2,953,922
  3,178,141
Total liabilities and equity, $m
  24,210
  38,672
  59,748
  89,354
  129,647
  182,914
  251,465
  337,539
  443,210
  570,304
  720,340
  894,500
  1,093,611
  1,318,169
  1,568,362
  1,844,115
  2,145,149
  2,471,031
  2,821,237
  3,195,198
  3,592,351
  4,012,179
  4,454,242
  4,918,207
  5,403,861
  5,911,130
  6,440,083
  6,990,942
  7,564,075
  8,160,005
  8,779,395
Debt-to-equity ratio
  1.352
  1.500
  1.600
  1.650
  1.690
  1.710
  1.720
  1.730
  1.740
  1.740
  1.750
  1.750
  1.750
  1.750
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
  1.760
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
  1,254
  2,280
  3,714
  5,656
  8,206
  11,467
  15,535
  20,498
  26,432
  33,398
  41,611
  50,760
  61,031
  72,428
  84,941
  98,556
  113,250
  128,998
  145,776
  163,558
  182,322
  202,052
  222,733
  244,359
  266,930
  290,450
  314,932
  340,396
  366,866
  394,374
Depreciation, amort., depletion, $m
  494
  977
  1,382
  1,950
  2,724
  3,747
  5,064
  6,717
  8,746
  11,187
  14,069
  17,179
  21,003
  25,315
  30,120
  35,416
  41,198
  47,456
  54,182
  61,364
  68,991
  77,054
  85,544
  94,454
  103,781
  113,523
  123,682
  134,261
  145,268
  156,713
  168,608
Funds from operations, $m
  240
  2,231
  3,662
  5,665
  8,380
  11,953
  16,531
  22,252
  29,245
  37,619
  47,466
  58,790
  71,763
  86,347
  102,548
  120,358
  139,754
  160,706
  183,180
  207,140
  232,549
  259,376
  287,595
  317,187
  348,140
  380,453
  414,132
  449,193
  485,664
  523,579
  562,982
Change in working capital, $m
  -486
  763
  1,109
  1,557
  2,120
  2,802
  3,606
  4,528
  5,559
  6,686
  7,893
  9,162
  10,474
  11,813
  13,161
  14,506
  15,836
  17,143
  18,423
  19,672
  20,892
  22,085
  23,255
  24,407
  25,548
  26,685
  27,826
  28,978
  30,150
  31,349
  32,583
Cash from operations, $m
  726
  1,468
  2,553
  4,107
  6,260
  9,151
  12,925
  17,724
  23,686
  30,934
  39,573
  49,628
  61,288
  74,534
  89,387
  105,852
  123,918
  143,563
  164,758
  187,468
  211,657
  237,291
  264,341
  292,780
  322,593
  353,768
  386,306
  420,215
  455,514
  492,230
  530,399
Maintenance CAPEX, $m
  0
  -465
  -743
  -1,147
  -1,716
  -2,490
  -3,513
  -4,829
  -6,482
  -8,512
  -10,953
  -13,834
  -17,179
  -21,003
  -25,315
  -30,120
  -35,416
  -41,198
  -47,456
  -54,182
  -61,364
  -68,991
  -77,054
  -85,544
  -94,454
  -103,781
  -113,523
  -123,682
  -134,261
  -145,268
  -156,713
New CAPEX, $m
  -1,334
  -8,345
  -12,143
  -17,057
  -23,215
  -30,689
  -39,495
  -49,592
  -60,882
  -73,225
  -86,443
  -100,342
  -114,718
  -129,379
  -144,148
  -158,875
  -173,440
  -187,757
  -201,771
  -215,457
  -228,820
  -241,884
  -254,695
  -267,313
  -279,810
  -292,263
  -304,757
  -317,377
  -330,211
  -343,345
  -356,862
Cash from investing activities, $m
  -1,273
  -8,810
  -12,886
  -18,204
  -24,931
  -33,179
  -43,008
  -54,421
  -67,364
  -81,737
  -97,396
  -114,176
  -131,897
  -150,382
  -169,463
  -188,995
  -208,856
  -228,955
  -249,227
  -269,639
  -290,184
  -310,875
  -331,749
  -352,857
  -374,264
  -396,044
  -418,280
  -441,059
  -464,472
  -488,613
  -513,575
Free cash flow, $m
  -547
  -7,342
  -10,333
  -14,097
  -18,671
  -24,028
  -30,084
  -36,697
  -43,679
  -50,803
  -57,823
  -64,548
  -70,609
  -75,848
  -80,077
  -83,144
  -84,939
  -85,392
  -84,469
  -82,172
  -78,527
  -73,584
  -67,408
  -60,077
  -51,671
  -42,276
  -31,974
  -20,844
  -8,958
  3,617
  16,824
Issuance/(repayment) of debt, $m
  -186
  9,269
  13,447
  18,888
  25,708
  33,984
  43,735
  54,916
  67,418
  81,086
  95,723
  111,113
  127,033
  143,268
  159,623
  175,930
  192,059
  207,913
  223,431
  238,587
  253,384
  267,850
  282,037
  296,009
  309,847
  323,637
  337,473
  351,448
  365,659
  380,203
  395,171
Issuance/(repurchase) of shares, $m
  2,365
  3,986
  5,350
  7,003
  8,931
  11,076
  13,348
  15,624
  17,754
  19,576
  20,916
  21,435
  21,319
  20,259
  18,142
  14,881
  10,418
  4,720
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2,190
  13,255
  18,797
  25,891
  34,639
  45,060
  57,083
  70,540
  85,172
  100,662
  116,639
  132,548
  148,352
  163,527
  177,765
  190,811
  202,477
  212,633
  223,431
  238,587
  253,384
  267,850
  282,037
  296,009
  309,847
  323,637
  337,473
  351,448
  365,659
  380,203
  395,171
Total cash flow (excl. dividends), $m
  1,647
  5,913
  8,464
  11,794
  15,967
  21,032
  27,000
  33,842
  41,494
  49,858
  58,816
  68,000
  77,743
  87,679
  97,688
  107,668
  117,539
  127,241
  138,962
  156,415
  174,857
  194,267
  214,628
  235,933
  258,176
  281,361
  305,499
  330,604
  356,701
  383,820
  411,996
Retained Cash Flow (-), $m
  -878
  -5,240
  -7,630
  -10,717
  -14,586
  -19,282
  -24,815
  -31,159
  -38,253
  -46,008
  -54,313
  -63,046
  -72,079
  -81,290
  -90,570
  -99,823
  -108,974
  -117,970
  -126,774
  -135,374
  -143,769
  -151,978
  -160,027
  -167,955
  -175,807
  -183,631
  -191,481
  -199,411
  -207,474
  -215,726
  -224,220
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
 
  673
  834
  1,077
  1,381
  1,750
  2,185
  2,683
  3,241
  3,850
  4,503
  4,955
  5,665
  6,389
  7,118
  7,845
  8,564
  9,271
  12,187
  21,041
  31,088
  42,289
  54,601
  67,978
  82,369
  97,730
  114,017
  131,193
  149,227
  168,094
  187,776
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
 
  615
  690
  799
  910
  1,013
  1,099
  1,160
  1,188
  1,181
  1,139
  1,018
  930
  824
  709
  591
  479
  377
  351
  421
  420
  377
  312
  242
  177
  123
  81
  51
  30
  17
  9
Current shareholders' claim on cash, %
  100
  76.6
  61.0
  50.1
  42.3
  36.5
  32.2
  28.8
  26.3
  24.3
  22.7
  21.6
  20.6
  20.0
  19.5
  19.1
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9
  18.9

Plains All American Pipeline, L.P., through its subsidiaries, engages in the transportation, storage, terminalling, and marketing of crude oil, natural gas liquids (NGL), natural gas, and refined products in the United States and Canada. Its Transportation segment transports crude oil and NGL through pipelines, gathering systems, trucks, and barges. As of December 31, 2016, this segment owned and leased 19,200 miles of active crude oil and NGL pipelines and gathering systems; 31 million barrels of active and above-ground tank capacity; 810 trailers; 120 transport and storage barges; and 60 transport tugs. The company’s Facilities segment provides storage, terminalling, and throughput services for crude oil, refined products, NGL, and natural gas; and NGL fractionation and isomerization, and natural gas and condensate processing services. As of December 31, 2016, it owned and operated approximately 80 million barrels of crude oil and refined products storage capacity; 32 million barrels of NGL storage capacity; 97 billion cubic feet of natural gas storage working capacity; 31 billion cubic feet of base gas; 9 natural gas processing plants; 1 condensate processing facility; 8 fractionation plants; 34 crude oil and NGL rail terminals; 6 marine facilities; and 1,000 miles of active pipelines. Its Supply and Logistics segment purchases crude oil at the wellhead, pipeline, terminal, and rail facilities; purchases cargos at load port and various locations in transit; stores inventory, and NGL and natural gas; purchases NGL; resells or exchanges crude oil and NGL; transports crude oil and NGL on trucks, barges, railcars, pipelines, and ocean-going vessels; and purchases and sells natural gas. As of December 31, 2016, it owned 14 million barrels of crude oil and NGL linefill; 5 million barrels of crude oil and NGL linefill; 820 trucks and 1,065 trailers; and 10,660 crude oil and NGL railcars. The company was founded in 1998 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Plains All American Pipeline (PAA)

Valuation Ratios
P/E Ratio 17.5
Price to Sales 0.6
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 17.5
Price to Free Cash Flow -20.9
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 60% 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 687.096 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 $13.1 billion.

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DKL Delek Logistic 30.00 43.65  buy
MPLX MPLX 32.89 6.00  str.sell
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COMPANY NEWS

▶ 4 Stocks That Are In Dividend Danger   [Aug-19-17 09:12AM  Forbes]
▶ MLP Rating Updates for the Week Ended August 11   [Aug-15-17 05:35PM  Market Realist]
▶ These MLPs Fell More Than 7% Last Week   [03:54PM  Market Realist]
▶ Is ONEOK Stock Currently Overvalued?   [09:06AM  Market Realist]
▶ These Energy Stocks Fell the Most between August 7 and 11   [Aug-14-17 04:08PM  Market Realist]
▶ These MLPs Increased Distribution in 3Q17   [04:19PM  Market Realist]
▶ ETEs and ETPs Price Forecasts after 2Q17 Earnings   [Aug-10-17 06:06PM  Market Realist]
▶ How Large-Cap MLPs Fared in 2Q17   [01:34PM  Market Realist]
▶ ETF Flopper: Plains All American Sinks, Weighs on MLPs   [Aug-08-17 06:25PM  Barrons.com]
▶ Plains All American misses Street 2Q forecasts   [12:00AM  Associated Press]
▶ PAA, WPZ, MMP, and CQP: Last Weeks Key MLP Rating Changes   [Jul-25-17 07:41AM  Market Realist]
▶ Will Plains All American Pipeline Gain Upward Momentum?   [Jul-17-17 04:05PM  Market Realist]
▶ EPD, ETP, PAA, WPZ: What Do Current Valuations Indicate?   [Jul-10-17 05:06PM  Market Realist]
▶ What MLP Valuations in June Tell Us Now   [Jul-07-17 09:09AM  Market Realist]
▶ Plains All American Pipeline Rose 7.6% Last Week   [Jul-03-17 02:35PM  Market Realist]
▶ MLPs Rose 4.2% in the Last Week of 1H17   [12:43PM  Market Realist]
▶ EEP, ETP, PAA, GEL: What Do the Current Valuations Indicate?   [Jun-29-17 10:36AM  Market Realist]
▶ ETP, EEP, PAA, and GEL: A Leverage Analysis   [Jun-28-17 10:36AM  Market Realist]
▶ Analyzing the Yields Offered by ETP, EEP, PAA, and GEL   [Jun-27-17 10:38AM  Market Realist]
▶ Are Energy Transfer Partners Earnings Stable?   [09:09AM  Market Realist]
▶ Why PAA Closely Follows the Movement of Crude Oil Prices   [Jun-23-17 09:09AM  Market Realist]
▶ PAA Stock Has Fallen 20% Year-to-Date: Whats Ahead?   [Jun-12-17 04:35PM  Market Realist]
▶ Houston midstream giant raises spending plans by $100M   [May-16-17 12:58PM  American City Business Journals]
▶ Magellan Midstreams Sell Recommendations Fall after Upgrade   [May-11-17 04:35PM  Market Realist]
▶ Plains All American misses 1Q profit forecasts   [May-08-17 04:16PM  Associated Press]
▶ Plains All American Gets a Hold Rating from 57% of Analysts   [May-03-17 09:05AM  Market Realist]
▶ Is Plains All American Pipeline Overvalued?   [07:35AM  Market Realist]
▶ Plains All American Targets Improved Coverage Ratio in 2017   [May-02-17 10:36AM  Market Realist]
▶ What Trends in PAAs Facilities Segments Volumes Indicate   [May-01-17 10:38AM  Market Realist]
▶ Plains All American Pipeline Is Down 9% in 2017Whats Ahead?   [Apr-28-17 06:06PM  Market Realist]
Stock chart of PAA 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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