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Buy and Hold Forever: This Undervalued Pipeline Stock Plummets by 14%

The Canadian stock markets are experiencing a strong upward trend, with the

S&P/TSX Composite Index

reaching fresh peaks on Tuesday. The easing of trade tensions along with expectations for interest rate reductions by the U.S. Federal Reserve, despite sluggish economic data, continues to boost Canada’s stock market performance.

However,

Pembina Pipeline

(

TSX:PPL

It has not participated in this rally and is currently trading at a 14% discount relative to last year’s peak. Factors such as trade tensions, disappointing first-quarter performance, and an unclear economic forecast due to protectionist measures seem to have dampened investor sentiment, causing the stock price to drop. Nonetheless, the downturn presents a compelling buying chance for long-term investors, considering its robust long-term growth prospects, attractive valuation, and steady dividend payments.

In the meantime, let’s examine its detailed first-quarter performance.

Pembina Pipeline’s first-quarter performance

Pembina Pipeline manages an extensive network of pipelines primarily for transporting crude oil and natural gas from production sites mainly located in Western Canada. The company also holds significant positions within sectors such as gas collection, processing, storage facilities, and propane exports. Recently, Pembina, headquartered in Calgary, announced varied outcomes for the initial quarter; although they did not meet projected revenues, their earnings per share surpassed estimates.

Its

topline

It came in at $2.3 billion, falling short of analysts’ predictions of $2.4 billion. Nevertheless, compared to last year, its top line expanded by 48.2%, driven by robust performances across pipelines, facilities, and marketing as well as new venture sectors. The company’s Pipelines and Facilities units saw a year-over-year rise of 9% in their throughput to reach 3.7 million BOE/d (barrels of oil equivalent per day). This surge was fueled by the acquisition of Alliance Aux Sable, increased output through the Nipisi Pipeline and within the Peace Pipeline system, along with elevated levels at its Pembina Gas Infrastructure following the Whitecap and Veren deals.

At the same time, the firm’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased by 11.8%, whereas its earnings per share (EPS) rose by 9.6%. Notably, its EPS reached $0.80, exceeding analyst projections which averaged out to be $0.75. Additionally, the business produced $840 million through operational activities. However, when adjusting for these cash flows, they amounted to $777 million—a slight decline compared to the prior-year period’s figure of $782 million. Let us now examine its potential for expansion.

Pembina Pipeline’s growth prospects

Pembina has reliably completed its initiatives without compromising safety and adhering to scheduled timelines and financial limits, thereby bolstering its standing. Currently, the firm is undertaking construction for projects valued at $4 billion, with an additional $4 billion in development stages. Consequently, such capital commitments have the potential to drive substantial production operations across Alberta and British Columbia.

Furthermore, Pembina has obtained a 50% share in the Greenlight Electricity Centre Limited Partnership, an entity dedicated to constructing electricity-producing installations for data center clients. Additionally, they have gained exclusive rights to extract NGLs from the Yellowhead Mainline natural gas pipeline and are currently erecting a straddle facility capable of processing up to 500 million cubic feet daily. Financially speaking, Pembina appears robust, boasting a debt-to-adjusted EBITDA ratio of 3.5 along with having $2.1 billion in available liquidity.

Investors’ takeaway

Pembina manages a varied and regulated business.

energy

The business generates between 80–90% of its revenue through fee-for-service, take-or-pay, and cost-of-service agreements. Consequently, its finances are more resilient against changes in commodity prices and market instability, ensuring steady cash flow and enabling continuous dividend increases. In the past decade, the firm has raised its dividends consistently.

dividends

With a 5% Compound Annual Growth Rate (CAGR) and offering an attractive forward dividend yield of 5.4%, the stock appears reasonably valued following recent market corrections. The next twelve-months’ valuation seems particularly appealing.

price-to-sales

multiple standing at 3.3.

Given all these elements, I think long-term investors ought to take advantage of the dip in this pipeline firm’s share price to increase their holdings and achieve greater yields.

The post

1 Stunning Pipeline Company Stock Dropped 14%, Ideal for Buying and Holding Indefinitely

appeared first on

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Fool contributor

Rajiv Nanjapla

does not own shares in any of the companies discussed. The Motley Fool suggests considering Pembina Pipeline. The Motley Fool has a

disclosure policy

.