Analyst Note
| Stephen Ellis |Plains' fourth-quarter results met our expectations, and its 2021 guidance mirrors our own forecast. As a result, we will maintain our fair value estimate and narrow moat ratings. Plains' 2020 EBITDA of $2.6 billion essentially matched its February 2020 guidance, and 2021 guidance of $2.15 billion reflects lower volumes and reduced marketing spreads across its fee-based transportation and facilities businesses, but also narrower spreads across its marketing business. Notably, the company has more than 70% of its long-haul pipelines contracted for at least five years, plus 2.5 million acres dedicated to gathering assets in the Permian.
With the expected weakness across the business this year, Plains is emphasizing its excess cash position. Plains expects over $1 billion in excess cash after distributions and capital spending, after factoring in an expected $750 million in asset sales, and our own forecast supports the over $1 billion in available cash. Plains upped its 2021 asset sale target by $150 million from the prior quarter, and also lowered its capital spending plans by $75 million to $425 million. As Plains' leverage metrics still remain a touch high at 3.7 times compared with its 3.25 times target, it plans to direct 75% of its excess cash toward reducing debt, while the remainder will be used to repurchase stock. Plains bought back 6.6 million limited partner units for $53 million during the fourth quarter, which we consider value-accretive given the substantial discount to our fair value. Looking ahead to 2021, expected purchases could easily top $250 million given the over $1 billion in expected excess cash flow, and this could accelerate into 2022, as Plains reaches its leverage targets and starts to allocate more cash toward share and unit buybacks.