Bullish indicating open at $55-$60, IPO prices at $37
Investing.com - Raymond (NSE:RYMD) James raised its price target on Pembina Pipeline Corp . (TSX:PPL) (NYSE:PBA) to C$64.00 from C$63.00 while maintaining an Outperform rating. According to InvestingPro data, the stock currently trades at $35.50, with analysts seeing an 8% upside potential.
The Canadian midstream company has been the worst-performing name in Raymond James’ coverage universe both year-to-date and over the last twelve months, according to the firm. This underperformance stems from concerns about Alliance Pipeline, the Dow project deferral, and investor worries about competition from KEY. Despite the challenges, Pembina maintains a strong 5.89% dividend yield and has maintained dividend payments for 21 consecutive years, as highlighted in InvestingPro’s analysis.
Raymond James believes this market reaction has been excessive and notes that Pembina’s valuation looks increasingly attractive. The firm views Pembina as having the best vertically integrated midstream network in Canada. Trading near its 52-week low, the stock appears slightly undervalued based on InvestingPro’s Fair Value analysis, with an EV/EBITDA ratio of 10.1x and strong financial health metrics.
The investment bank sees significant upside potential from both sanctioned and unsanctioned growth projects that it believes the market is underappreciating. Its model projects Infrastructure-only Adjusted EBITDA per share growth of approximately 7% annually from 2024 to 2028.
While acknowledging that this growth may be weighted toward later years, Raymond James emphasizes that the growth potential "is definitely there," supporting its higher price target that represents approximately 31% upside potential.
In other recent news, Pembina Pipeline Corporation announced a significant development with the Alliance Pipeline Limited Partnership. The company reached a 10-year settlement with shippers on the Canadian portion of the Alliance Pipeline, which is expected to reduce long-term firm tolls by an average of 14 percent. In another move, Pembina has received approval from the Toronto Stock Exchange to initiate a share repurchase program. This program allows the company to buy back up to five percent of its outstanding common shares, reflecting confidence in its valuation.
Additionally, RBC Capital Markets adjusted its price target for Pembina Pipeline, lowering it from Cdn$65.00 to Cdn$62.00. Despite the reduction, the firm maintained an Outperform rating, citing the ongoing Alliance Pipeline settlement discussions as a factor impacting investor sentiment. Analyst Maurice Choy from RBC Capital emphasized that the market has not fully appreciated Pembina’s recent quarterly results. He suggested that once the settlement is resolved, the company’s undervaluation and strong cash flow profile might become more evident to investors. These developments highlight a period of strategic adjustments and market evaluations for Pembina Pipeline.
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