Pembina Pipeline (TSX: PPL) is one of Canada’s lesser-known energy companies. For 65 years, it has been providing energy transportation and infrastructure services to Canadian oil companies. It is not as renowned as its larger cousin Enbridge, but is an important part of Canada’s energy infrastructure in its own right. In this article, I will explore PPL stock’s characteristics to help you determine whether it’s a suitable investment for you.
Recent earnings
An obvious place to start when researching any company is its recent earnings. A company’s most recent earnings release tells you how well it did in the last quarter, providing a quick snapshot of its performance.
How did Pembina Pipeline do in its most recent quarter?
According to its Q1 earnings release, it delivered:
- $2.2 billion in revenue, down 24%.
- $946 million in net revenue, down 18%.
- $672 million in gross profit, down 22%.
- $369 million in earnings, down 23.2%.
- $458 million in cash from operations, down 30%.
- $0.61 in earnings per share, down 24.6%.
- 3.2 million barrels of oil transported per day, down 5.3%.
These figures look pretty bad on the surface. All of the company’s key earnings metrics declined, as did its volumes. However, the decline in earnings was not actually as bad as what was seen at oil producers. Pembina Pipeline is not an oil exploration (“E&P”) company, it simply transports and stores oil for others. The companies that sell oil directly saw their earnings decline much more than Pembina did last quarter. For example, Suncor Energy’s earnings declined 30%, compared to 23.2% for Pembina. Pipelines are less sensitive to oil prices than E&Ps are, as they make most of their money transporting oil, not selling it. So, Pembina Pipeline’s most recent quarterly performance was not as bad as much of what was seen in the oil and gas sector in the same period.
Long-term track record
Having looked at Pembina Pipeline’s most recent earnings release, it’s time to take a look at the long-term picture. Over the last five years, PPL stock has delivered the following compounded annual (“CAGR”) growth rates:
- 10.6% in revenue.
- 11% in operating income.
- 23.3% in net income.
- 19.9% in earnings per share.
- 3.7% in assets.
Pembina’s long-term picture is much better than its most recent quarterly showing. If the company’s future resembles its recent past, then it should deliver an adequate result for shareholders.
Prospects for the pipeline industry overall
It’s one thing to say that a company’s past was impressive, but quite another to argue that the same kind of performance will continue into the future. As the saying goes, “past results don’t predict future results.” That’s as true of earnings as it is of stock prices. So, we need to know some things about PPL’s industry to determine whether it can continue growing and thriving into the future.
A lot of this will come down to the company’s industry. As a company that transports crude oil, Pembina Pipeline will be in danger if countries shift away from fossil fuels and toward green energy. Electric vehicles (EVs), in particular, have real potential to reduce the demand for gasoline. Over time, this could reduce demand for pipeline services, like those PPL provides. However, pipelines tend to lock their clients into very long-term (10-20 years) contracts, so day-to-day fluctuations in the price of oil shouldn’t affect Pembina very much. On the whole, it is a fairly safe dividend stock for the medium term.
