Why Pembina Pipeline Corp. Is Rallying Over 4%

Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA) is up over 4% following its Q4 2017 earnings release. Is now the time to buy?

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Pembina Pipeline Corp. (TSX:PPL)(NYSE:PBA), one of North America’s largest owners and operators of energy infrastructure, announced its fiscal 2017 fourth-quarter and full-year earnings results after the market closed yesterday, and its stock has responded by rallying over 4% at the open of today’s trading session. Let’s break down the results and the fundamentals of its stock to determine if now is the time to buy.

A record financial performance 

Here’s a quick breakdown of eight of the most notable statistics from Pembina’s three-month period ended December 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Revenue $1,716 million $1,251 million 37.2%
Net revenue $709 million $514 million 37.9%
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) $674 million $342 million 97.1%
Adjusted cash flow from operating activities $499 million $292 million 70.9%
Adjusted cash flow from operating activities per common share $0.99 $0.74 33.8%
Earnings $445 million $131 million 239.7%
Diluted earnings per common share (EPS) $0.83 $0.28 196.4%
Total volume – thousands of barrels of oil equivalent per day (mboe/d) 2,917 1,941 50.3%

And here’s a quick breakdown of eight of the most notable statistics from Pembina’s 12-month period ended December 31, 2017, compared with the same period in 2016:

Metric Fiscal 2017 Fiscal 2016 Change
Revenue $5,408 million $4,265 million 26.8%
Net revenue $2,246 million $1,764 million 27.3%
Adjusted EBITDA $1,705 million $1,189 million 43.4%
Adjusted cash flow from operating activities $1,396 million $986 million 41.6%
Adjusted cash flow from operating activities per common share $3.27 $2.54 28.7%
Earnings $891 million $466 million 91.2%
Diluted EPS $1.88 $1.01 86.1%
Total volume – (mboe/d) 1,705 1,189 43.4%

Is now the time to buy?

The fourth quarter capped off a transformational year for Pembina, in which it completed its strategic acquisition of Veresen and placed $4.8 billion of projects into service, and this led to record fourth-quarter and full-year adjusted EBITDA, adjusted cash flow, and adjusted cash flow per share for the company; with its record performance in mind, I think the large pop in its stock is warranted, and I think it’s still a great buy today for two fundamental reasons.

First, it’s still undervalued. Even after the +4% pop, Pembina’s stock trades at just 22.8 times fiscal 2017’s diluted EPS of $1.88 and only 20.3 times the consensus EPS estimate of $2.11 for fiscal 2018, both of which are very inexpensive given its current earnings-growth rate and its long-term growth potential; these multiples are also inexpensive compared with its five-year average multiple of 36.8.

Second, it has one of the best dividends in the energy sector. Pembina currently pays a monthly dividend of $0.18 per share, representing $2.16 per share annually, which gives it a juicy 5% yield. Investors must also note that the infrastructure giant’s 5.9% dividend hike in November has it on track for 2018 to mark the seventh straight year in which it has raised its annual dividend payment, making it both a high-yield and dividend-growth play.

With all of the information provided above in mind, I think all Foolish investors seeking exposure to the energy sector should strongly consider beginning to scale in to long-term positions in Pembina Pipeline today.

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. Pembina is a recommendation of Dividend Investor Canada.

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