Valuentum Exclusive Analysis for the Discerning Investor

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Image Shown: Plains All American's stock price may be building in a distribution cut that may materialize in the near term.

Several companies disappointed the Street as of late. Though the broader equity markets have been generally calm and steadily-advancing, some underlying constituents have been anything but.

By Brian Nelson, CFA

It’s been a bull market for some time, but that doesn’t mean all is calm within the ranks.

Plains All American (PAA) disappointed investors August 8 after performance during its second quarter came in below expectations and the company lowered forward guidance. We’ve been cautious on the master limited partnership (MLP) space and critical of certain industry-specific metrics for some time, so the disappointment shouldn’t be surprising to our readership. Plains All American noted that it is conducting a “management and board review of PAA’s distribution” as “opinions differ on the ‘right’ distribution level (page 12)," and the executive team pointed to $1.80 per share as an illustrative distribution level, which if implemented would amount to a $0.40 per-share reduction from current $2.20 per-share levels. Plains All American’s Dividend Cushion ratio is -0.7 (negative 0.7). The executive team reduced its fiscal 2017 adjusted EBITDA outlook to $2.075 billion:

Unfortunately, we continue to experience significant downward pressure in our margin-based Supply and Logistics segment. As a result, we updated our full-year 2017 Adjusted EBITDA guidance and our 2018 preliminary forecast. The updated 2017 guidance reflects a downward revision of $185 million, or 8%, primarily associated with the Supply & Logistics segment. Our 2018 preliminary forecast now includes a range with respect to our Supply & Logistics segment, from $100 million to $300 million.

Plains All American’s shares are now trading under $20 per share, down from the high-$20s just a month ago and as high as over $60 in July 2014. As with many other MLPs, including Energy Transfer Partners (ETP), which is also again trading below $20 per share, Plains All American’s stock has been nothing short of a train wreck.

Retail has also been a mine field, too. JC Penney (JCP), Dillard’s (DDS), Macy’s (M), Fossil (FOSL), Dick’s Sporting Goods (DKS), Coach (COH) and Office Depot (ODP) have all seen the prices of their shares walloped of late. JC Penney’s second-quarter report, released August 11, showed larger-than-expected losses and weaker-than-expected comparable sales, and the troubled department store may not make it to the other side of the next recession with shareholder capital intact. Dillard’s and Macy’s weren’t spared the pain in their respective second quarters either, and the very-real Amazon (AMZN) threat, compounded by changing preferences of millennials, is putting the department-store and sporting goods business models under significant pressure. Macy’s shares, in particular, are now trading below $20 from nearly $70 in July 2015, while Dick’s is now a sub-$30 per-share stock after trading for nearly double its current level less than a year ago.

Not all is great in the land of auto parts retailing either. Advance Auto Parts' (AAP) second-quarter report, released August 15, recently sent shockwaves through the auto-parts retailing space, also pressuring shares of peers AutoZone (AZO), O’Reilly (ORLY), and Monro Muffler (MNRO). Advance Auto Parts expects industry headwinds to persist in the second half of the year with comparable store sales expected to fall 1%-3% for the full year. The company’s shares topped out at nearly $200 each at the end of 2015 and have now settled under $100 at the time of this writing. The bulls are driving the broader stock market higher, seemingly each and every week, but there are many pockets of weakness within the underlying.

Pipelines - Oil & Gas: BPL, BWP, DPM, ENB, EPD, ETP, EVEP, HEP, KMI, MMP, NS, OKS, PAA, SE, SEP, WES