Pembina Pipeline Corporation PBA is a key player in the energy transportation and midstream services sector, operating across three primary segments, Pipelines, Facilities and Marketing and New Ventures. With a transportation capacity of 2.9 million barrels of oil equivalent per day, Pembina's Pipelines segment plays a vital role in moving energy resources across North America. The Facilities segment handles the transportation and storage of natural gas, condensate and natural gas liquids, while the Marketing and New Ventures segment buys and sells hydrocarbons, focusing on resources from the Western Canadian Sedimentary Basin.
Headquartered in Calgary, Alberta, the company announced its 2025 corporate guidance, expecting an adjusted EBITDA of C$4.2 billion to C$4.5 billion. This growth is attributed to increased activity in the Western Canadian Sedimentary Basin, new asset acquisitions and the consolidation of Alliance and Aux Sable. The company plans a Capex of C$1.1 billion for 2025, aimed at pipeline expansions, facility construction and IT improvements. Pembina may also raise its Capex by C$200 million if additional projects are approved.
As an investor, it is important to consider both strengths and risks of Pembina stock to decide if this is the right time to buy or hold. Let us take a closer look at the key factors affecting its performance.
Why Pembina Stock Is Poised for Stability
Strong Financial Results and Cash Flow Growth: Pembina posted a solid third-quarter performance in 2024 with adjusted EBITDA of C$1 billion and cash flow from operations rising 43.2% year over year to C$922 million. This impressive growth signals financial stability and resilience, making Pembina an attractive option for investors seeking steady cash flow and long-term potential.
Strategic Acquisitions for Long-Term Growth: Recently, the oil and gas storage and transportation company completed the acquisition of a 50% stake in Whitecap’s Kaybob complex, a move that enhances its control over vital assets and boosts operational efficiency. These strategic acquisitions not only strengthen Pembina’s market position but also create opportunities for continued expansion.
Solid Volume Growth Across Key Segments: Pembina’s core Pipelines and Facilities segments have shown positive volume trends. Pipeline volumes grew 5.5% year over year, driven by the reactivation of the Nipisi Pipeline and higher demand from the Alliance asset. The Facilities division also saw growth in EBITDA, fueled by strong demand and recent acquisitions, contributing to Pembina’s diversified revenue streams.
Reliable Dividend Payments: Pembina maintains a history of consistent dividend payments with a quarterly dividend of 69 Canadian cents per share. This steady payout appeals to income-focused investors, adding an element of stability to the stock.
Progress on Key LNG and Infrastructure Projects: Pembina’s Cedar LNG Project, developed in partnership with the Haisla Nation, is making progress with early construction milestones already completed. Additionally, the NEBC MPS expansion and Wapiti Expansion projects are set to increase capacity and strengthen Pembina’s position in Canada’s growing LNG market.
Risks That Could Impact Pembina Stock
Earnings and Revenue Challenges for Certain Assets: Pembina faced challenges with its Cochin Pipeline in the third quarter, including lower tolls from new contracts and a temporary gap in contracting. These factors resulted in a C$44 million EBITDA decline, which highlights potential risks to earnings from key assets.
Regulatory and Environmental Risks: Pembina’s expansion efforts, including the Cedar LNG Project, are dependent on regulatory approvals. Delays or obstacles related to environmental assessments, indigenous agreements or other regulatory processes could affect project timelines and lead to potential cost overruns.
Recent Stock Performance Concerns: PBA's share price has dropped 13.3% in the past three months, while the Production and Pipelines Oil and Gas sub-industry has gained 8.3%. This decline in stock price puts Pembina behind its peers in the same industry with Kinder Morgan, Inc. KMI, The Williams Companies, Inc. WMB and Enbridge Inc. ENB rising 19.8%, 13.9% and 5.5%, respectively. This underperformance could be indicative of investor concerns and may further impact Pembina's valuation in the short term.
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Exposure to Commodity Price Fluctuations: Pembina’s Marketing and New Ventures segment is highly sensitive to commodity prices as seen with lower realized gains from derivatives and declining NGL margins in the third quarter. These price fluctuations expose Pembina to revenue instability, especially in volatile market conditions.
Capital Intensity of Ongoing Projects: Pembina’s significant capital expenditure commitments, particularly for major projects like the $4 billion Cedar LNG facility and the RFS IV expansion, could strain its free cash flow. Delays, cost overruns or underperformance in these projects could limit returns for investors.
Final Thoughts for PBA Stock
Pembina stock shows potential for stability, driven by strong financial performance, strategic acquisitions, solid volume growth in key segments and reliable dividend payments. The company’s ongoing LNG projects, like Cedar LNG, further strengthen its position in the market. However, risks include revenue volatility from specific assets like the Cochin Pipeline, regulatory hurdles for expansion projects, exposure to commodity price fluctuations and the capital intensity of major projects, which could strain cash flow and investor returns.
Given this mix of strengths and potential challenges, investors should wait for a more favorable entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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