The Motley Fool

Is Pembina Pipeline Corp. the Top Pipeline Stock to Buy Today?

Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA), one of the leading transportation and service providers to North America’s energy industry, announced first-quarter earnings before the market opened on May 6 and its stock has responded by falling about 1%. Let’s break down the quarterly results to determine if we should consider using this weakness as a long-term buying opportunity, or as a warning sign.

Lower commodity prices lead to weak first-quarter results

Here’s a summary of Pembina’s first-quarter earnings results compared with its results in the same period a year ago.

Metric Q1 2015 Q1 2014
Earnings Per Share $0.32 $0.41
Revenue $1.15 billion $1.76 billion

Source: Pembina Pipeline Corp.

Pembina’s diluted earnings per share decreased 22% and its revenue decreased 34.4% compared with the first quarter of fiscal 2014. The company noted that these weak results could be attributed to “the impact of significantly lower commodity prices,” including the average market price of propane falling over 50% compared with the year-ago period.

Here’s a quick breakdown of 10 other notable statistics from the report compared with the year-ago period:

  1. Conventional Pipelines throughput volume increased 14.5% to 633,000 barrels per day
  2. Gas Services average volume processed increased 28.4% to 113,000 barrels of oil equivalents per day
  3. Midstream natural gas liquids sales volume decreased 3% to 129,000 barrels per day
  4. Net revenue decreased 16.1% to $375 million
  5. Operating margin decreased 18.9% to $284 million
  6. Earnings before interest, taxes, depreciation, and amortization (EBITDA) decreased 24.1% to $240 million
  7. Gross profit decreased 24.5% to $228 million
  8. Adjusted cash flow from operating activities decreased 19.3% to $213 million
  9. Adjusted cash flow from operating activities decreased 24.1% to $0.63 per share
  10. Capital expenditures increased 73.5% to $498 million

Also, on May 5 Pembina announced a 5.2% increase to its monthly dividend to $0.1525 per share, and the next payment will come on June 15 to shareholders of record at the close of business on May 25.

Should you buy shares of Pembina on the dip?

Although I think the post-earnings weakness in Pembina’s stock is warranted, I also think it represents a very attractive long-term buying opportunity because it trades at inexpensive valuations and has a very high dividend yield.

First, Pembina’s stock trades at 36.8 times fiscal 2015’s estimated earnings per share of $1.12 and just 29.5 times fiscal 2016’s estimated earnings per share of $1.40, both of which are inexpensive compared with its long-term growth potential.

Second, Pembina now pays an annual dividend of $1.83 per share, giving its stock a very high 4.4% yield at today’s levels. The company has also increased its dividend for four consecutive years, showing that it is strongly dedicated to maximizing shareholder returns.

With all of the information provided above in mind, I think Pembina Pipeline Corp. represents one of the best long-term investment opportunities in the energy sector today. Foolish investors should take a closer look and strongly consider using the post-earnings weakness to begin scaling in to positions.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.