Pembina Pipeline Corporation (PBA Quick QuotePBA - Free Report) is currently trading near its 52-week high, reflecting its strong performance this year. Shares have surged 18% year to date (YTD), a significant outperformance against the broader oil-energy sector’s 0.4% decline.

Headquartered in Calgary, Alberta, Pembina is a major player in the energy infrastructure arena, boasting a vertically integrated model that spans the entire hydrocarbon value chain. PBA’s extensive network passes through some of North America's most productive basins.

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The company’s diverse portfolio includes everything from conventional and oil sand pipelines to transmission pipelines, fractionators and gas processing plants. As a dual-listed entity on both the New York Stock Exchange and the Toronto Stock Exchange, PBA has an amazing infrastructure capacity of around 3 million barrels per day for hydrocarbon transportation, 6 billion cubic feet per day for gas processing and 32 million barrels for hydrocarbon storage.

Pembina’s operations are strategically divided into three key segments — Pipelines, Facilities and Marketing & New Ventures. The company makes money by charging fees for its services. In short, PBA’s operations are well-diversified and largely supported by fee-based contracts, with 65-75% of its revenues coming from take-or-pay agreements.

Image Source: Pembina Pipeline Corporation

Given the stock’s impressive momentum, you might be wondering whether now is the prime moment to invest or if it’s wiser to hold off for a better opportunity. To help with your decision, let’s dive into eight compelling reasons to buy and eight considerations for waiting.
 

Why Pembina’s Stock Is Soaring

Improving Financial Ratios and Dividend Growth: Pembina’s debt-to-adjusted EBITDA ratio is currently 3.6 times, near the lower end of its target range, reflecting a robust balance sheet and strong financial flexibility. This financial stability is further boosted by Pembina’s impressive dividend track record. Since 1998, Pembina has consistently increased its dividends, with a 25-year compound annual growth rate of about 4.3%. The declared dividend for third-quarter 2024 is C$0.69 per share, translating to an annualized dividend of C$2.76, which offers an attractive yield for income-focused investors.

Robust Cash Flow: PBA reported record adjusted cash flow from operating activities of C$837 million in second-quarter 2024, a 38% increase from the prior-year quarter's level. This robust cash flow supports capital investments and dividend payments, positioning the stock as a stable option for long-term investors.

Positive Earnings Outlook: PBA raised its adjusted EBITDA guidance from C$4.2 billion to C$4.35 billion, reflecting management's confidence in continued strong performance across its core businesses. This revision signals a potential upside in the stock as the company outperforms expectations. Currently, the company carries a Momentum Score of A.

Strong Pipeline and Facilities Volumes: In second-quarter 2024, pipeline volumes grew 11% and facilities volumes increased 14% compared to the prior-year quarter’s levels. The continued growth in volumes, driven by increased ownership in Alliance and the reactivation of the Nipisi Pipeline, indicates strong operational performance. Buying when the company announces further volume increases or favorable demand trends can be a strategic move.

Strategic Acquisitions: Pembina’s acquisition of the remaining interest in Aux Sable enhances its ability to capitalize on synergies. Additionally, the positive final investment decision on the $4 billion Cedar LNG Project, in partnership with the Haisla Nation, positions PBA to benefit from the increasing demand for low-carbon LNG. If the market has not fully priced in the long-term benefits of these acquisitions, this can present a buying opportunity during periods of price consolidation. Recently, PBA announced that its Pembina Gas Infrastructure unit will buy four oil battery sites located in the Gold Creek and Karr areas. These sites feature a natural gas handling capacity of 320 million cubic feet per day and a liquids handling capacity of 53,000 barrels per day.
 

Reasons to Exercise Caution for PBA Stock

Dependence on Canadian Energy Markets: Pembina's reliance on the Western Canadian Sedimentary Basin for a significant portion of its business exposes the company to regional market risks, such as reduced drilling activity or weaker commodity prices. If demand from this region falters, the company’s earnings could be negatively impacted.

Debt Levels: Energy infrastructure is a capital-intensive industry and Pembina Pipeline's significant long-term debt of C$11.7 billion poses a financial constraint. This limits the company's ability to pursue growth opportunities. Pembina's current liabilities exceed its current assets, indicating potential liquidity challenges in meeting short-term obligations.

Commodity Price Exposure: Pembina’s marketing and new ventures are exposed to fluctuations in natural gas and NGL prices. Realized losses on NGL-based derivatives in second-quarter 2024, combined with low natural gas prices, indicate that commodity volatility could hurt future earnings.

Increased Capital Expenditures: PBA raised its 2024 capital investment program to C$1.3 billion. While supporting growth, rising costs and potential project overruns, such as the RFS IV expansion, pose risks to profitability.

Geopolitical or Regulatory Risks: Pembina's operations are subject to regulatory and environmental risks, particularly with projects like Cedar LNG. If regulatory challenges arise that could delay or cancel significant projects, it could create downward pressure on the stock.
 

Verdict for PBA Stock

PBA’s shares have surged 18% YTD, reflecting strong performance and a solid growth outlook. With impressive cash flow, a robust dividend history and strategic acquisitions boosting its market position, Pembina seems like a promising investment.

On the other hand, the company's reliance on Canadian energy markets, exposure to commodity price fluctuations and potential project risks could impact results. However, broker recommendations are mostly positive. Out of the 12 brokers covering PBA stock, seven have issued Strong Buy recommendations, one has given a Buy recommendation and four have rated it as Hold. There are no Sell recommendations for the stock. Instead of adding PBA, carrying a Zacks Rank #3 (Hold), to their portfolios, investors should wait for a more opportune entry point.
 

Key Picks

Investors interested in the energy sector might look at some better-ranked stocks like MPLX LP (MPLX Quick QuoteMPLX - Free Report) , sporting a Zacks Rank #1 (Strong Buy) and VAALCO Energy, Inc. (EGY Quick QuoteEGY - Free Report) and Core Laboratories Inc. (CLB Quick QuoteCLB - Free Report) , each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Findlay, OH-based MPLX LP is valued at $43.45 billion. In the past year, its shares have risen 22.6%. MPLX owns and operates midstream energy infrastructure and logistics assets in the United States. It operates under two segments, namely Logistics and Storage, and Gathering and Processing.

Houston, TX-based Vaalco Energy is valued at $583.04 million. The oil and gas exploration and production company currently pays a dividend of 25 cents per share, or 4.45%, on an annual basis. EGY is an independent energy company principally engaged in the acquisition, exploration, development and production of crude oil and natural gas.

Core Laboratories is valued at $810.66 million. The company currently pays a dividend of 4 cents per share, or 0.23%, on an annual basis. Netherlands-based CLB is an oilfield services company, operating in more than 50 countries. The firm deals with providing reservoir management and production enhancement services to oil and gas companies.