We initiate on PAGP with a Strong Buy rating and $41 PT. Plains GP Holdings, L.P. operates some of the deepest crude oil and NGL midstream infrastructure in North America across its pipeline, storage, and logistics networks in the U.S. and Canada. Despite a mature sector, the market’s long- engrained misperception of PAGP’s earnings power — a hangover from legacy midstream volatility — no longer holds amid transformed fundamentals.
With tail risks around rates and commodities still top of mind, three dynamics have aligned to drive a re-rating:
- visible earnings growth well ahead of consensus, 2) margin resiliency supported by robust hedge coverage, and 3) capital discipline delivering leverage below 4.0x. We project FY26E EBITDA of $2.90bn, underpinned by tangible growth drivers: Permian long-haul throughput adding +250kbpd by 2025, the Edmonton ramp-up, and CPI-linked tariff escalators, all of which management is actively executing.
The Market’s focus on GP DCF overlooks consolidated cash generation, a modeling blind spot that underestimates true earnings power. With peer multiples anchored at ~9.5x EV/EBITDA and PAGP trading at 4.25x, we see a >55% discount as historically anomalous for a structurally self-funded business. Our base valuation applies a 5.8x multiple to FY26E, reflecting upside from anticipated Fed cuts and stepped-up shareholder returns, while maintaining a discount for potential shocks, offset in part by fee-based contracts and healthy coverage ratios. Despite cyclical noise, the R/R is compelling — we rarely encounter such asymmetric upside in a business with this scale and visibility.