On Wednesday, UBS initiated coverage on Pembina Pipeline (NYSE:PBA) Corp. (PPL (NYSE:PPL):CN) (NYSE: PBA) stock, assigning a Neutral rating to the stock with a price target of C$58.00.
The firm forecasts a compound annual growth rate (CAGR) of approximately 3% in Pembina's EBITDA from 2024 to 2027. This expectation is based on a variety of growth drivers including multiple expansion projects and strategic acquisitions.
Pembina's EBITDA growth is anticipated to be driven by several key initiatives. These include the Peace Phase VIII and NEBC MPS Expansion projects, along with the RFS IV and Wapiti Expansion. Additionally, the K3 Cogen project is expected to reduce costs.
Pembina's recent acquisition of additional interests in Alliance and Aux Sable from ENB, as well as the Veren acquisition, are also contributing factors to the projected growth.
The firm has acknowledged Pembina's final investment decision (FID) on the Cedar LNG project as a positive development. This project is projected to contribute an additional C$200 to C$260 million to Pembina's EBITDA by the end of the decade. The Cedar LNG project is seen as a significant step for Pembina, enhancing its growth prospects.
Despite these positive factors, UBS has cited a "catalyst light" environment for Pembina, which implies that there are few anticipated events that could significantly move the stock price in the near term. Moreover, the firm notes that the potential for stock price appreciation appears limited, suggesting a balanced risk/reward profile for investors.
UBS also points out that due to the higher expenditure required to support the Cedar LNG project, cash returns to shareholders are expected to be more modest compared to Pembina's industry peers. This financial commitment to the LNG project may temper near-term shareholder returns but aims to strengthen the company's position in the long term.
InvestingPro Insights
As UBS initiates coverage on Pembina Pipeline Corp ., offering a nuanced view of the company's growth prospects and investment potential, real-time data from InvestingPro provides additional context for investors. According to InvestingPro, Pembina Pipeline Corp. has a market capitalization of $23.56 billion and trades with a Price to Earnings (P/E) ratio of 16.8. Notably, the company has shown a robust revenue growth of 11.29% over the last twelve months as of Q2 2024, outpacing many competitors in the industry. This aligns with UBS's positive outlook on the company's growth trajectory driven by strategic projects and acquisitions.
InvestingPro Tips highlight that Pembina has maintained a consistent dividend payment for 20 consecutive years, which could be a reassuring factor for income-focused investors. Furthermore, with the company trading near its 52-week high and analysts predicting profitability for the current year, Pembina presents an interesting case for those seeking stability and potential growth. It's worth noting that while short-term obligations exceed liquid assets, the company's long-term investment decisions, such as the Cedar LNG project, are expected to solidify its market position. For investors seeking a deeper dive, InvestingPro offers additional tips on Pembina Pipeline Corp., which can be found at https://www.investing.com/pro/PBA.
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