Citi analyst Spiro Dounis boosted his valuation for Pembina Pipeline Corp. (PPL-T +0.52%increase
) to reflect higher cash flows following its first-quarter beat and additions to its project backlog that are expected to drive higher EBITDA in 2026 and beyond.
“PPL appears to be flush with accretive projects, adding gas storage (in high demand) and LPG exports (highly strategic) to an already large backlog of projects – many of which are low-cost/high-return brownfield investments,” he said. “We model 6-per-cent EBITDA/share CAGR through 2026, consistent with management’s 4-6-per-cent guided range. Even with Cedar LNG capital spending, we expect PPL to generate cumulative FCFAD of $0.9-billion through 2026 when Cedar capital spending peaks. At current prices, we estimate a 7-per-cent FCF yield, consistent with the peer group.”
Reiterating his “neutral” recommendation, the analyst bumped his target to $53 from $50. The average on the Street is $54.50.
“PPL boasts a growth backlog of high-quality and low-carbon projects; however, the company already trades at a premium to peers and likely reflects most of these positive attributes,” said Mr. Dounis. “PPL offers investors a unique dual track: a low-risk growing base business and one of the most holistic approaches to low-carbon growth among our coverage. PPL’s base business take-or-pay earnings profile bests its peers. Its growth backlog of low-carbon projects also stands out.
“That said, PPL already trades at a premium, reflecting its lower risk profile. Its energy transition projects have the potential to offer new revenue streams, but are in early stages and present execution risk. PPL trades at a high-single-digit FCF yield, which is in-line with peers and offers comparable growth forecast.”