“Things are looking up” for Pembina Pipeline Corp. (PPL-T +0.38% increase), according to Citi analyst Spiro Dounis, who raised his full-year forecast for the Calgary-based company to reflect an “improved cash flow outlook supported by the ‘23 EBITDA guidance raise and flow-through impact.”
“Marketing continues to outperform; management acknowledged the $0.2-0.4-billion run rate EBITDA guidance may be too conservative,” he said in a research note. “We expect the company to guide at or above that range with its December annual update. Looking ahead, we model ‘24 to be slightly FCF negative to reflect the impending Cedar LNG FID. That said, over a multi-year period we expect PPL to generate an average of $0.7-billion in excess cash flow annually (potential TMX purchase excluded). Our updated valuation implies a 9.7 times multiple on 2025 estimated EBITDA, a 1-times premium to large-cap peers that we believe appropriately reflects PPL’s stable cash flows and growth outlook.”
Mr. Dounis raised his fourth-quarter earnings per share forecast by 9 cents to 78 cents with his full-year expectation jumping to $2.71 from $2.54. His 2024 and 2025 projections decline to $2.61 and $2.81, respectively, from $2.72 and $2.91.
Maintaining a “neutral” recommendation for Pembina shares, Mr. Dounis hiked his target to $46 from $42. The average target on the Street is $50.77, according to Refinitiv data.
“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,” he concluded. “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.”
Elsewhere, JP Morgan’s Jeremy Tonet increased his target to $50 from $49 with a “neutral” rating.