On Monday, CFRA downgraded shares of Pembina Pipeline (NYSE:PBA) Corp. (PPL (NYSE:PPL):CN) (NYSE: PBA) from Buy to Hold, while raising the price target to Cdn$62.00 from Cdn$59.00. The revision reflects a new 12-month target based on an 11.0x multiple of the enterprise value to projected 2025 EBITDA, which is slightly above the company's historical forward average.
The downgrade comes despite the analyst's increase of the price target, which was moved up by Cdn$3.00. This adjustment stems from a cut in the 2024 earnings per share (EPS) estimate by Cdn$0.04 to Cdn$4.34, while the 2025 EPS estimate remains unchanged at Cdn$3.45.
The decision to downgrade is attributed to the stock's valuation after it experienced a 30% rise year-to-date. The analyst believes that the increase in share price has been driven by expectations of future natural gas movements from interior Western Canada to the West Coast. The anticipation is tied to the LNG Canada project, which is expected to stimulate gas exports to Asia.
However, the current market prices for natural gas in Alberta are considered low, estimated at about USD$0.70/MMBtu. This could lead to producers scaling back dry gas production in 2025, potentially limiting incremental midstream demand beyond current projections.
The analyst notes that while the start of commercial service by LNG Canada, expected in mid-2025, should improve demand and pricing, LNG projects are costly and subject to delays. Pembina Pipeline's shares currently offer a dividend yield of 4.7%.
InvestingPro Insights
Recent data from InvestingPro provides additional context to CFRA's analysis of Pembina Pipeline Corp . (NYSE: PBA). The company's market capitalization stands at $24.46 billion, with a P/E ratio of 17.88, reflecting its current valuation. Notably, PBA's revenue growth has been robust, with a 30.45% increase in the most recent quarter, aligning with the positive outlook on future natural gas movements mentioned in the article.
InvestingPro Tips highlight that PBA has maintained dividend payments for 20 consecutive years, underscoring the company's commitment to shareholder returns. This is particularly relevant given the article's mention of PBA's current 4.7% dividend yield. Additionally, the stock is trading near its 52-week high, which corroborates CFRA's observation about the 30% year-to-date increase in share price.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Pembina Pipeline's financial health and market position.
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