There's no stopping the Pembina Pipeline Corporation (TSX:PPL) growth train, with analysts forecasting high top-line growth in the near future. I will touched on some key aspects you should know on a high level, around its financials and growth prospects going forward.
First, a short introduction to the company is in order. Pembina Pipeline Corporation provides transportation and midstream services for the energy industry in North America. Founded in 1997, it currently operates in Canada at a market cap of CA$20.10B.
The company is growing incredibly fast, with a year-on-year revenue growth of 26.80% over the past financial year , and a bottom line growth of 104.32%. Since 2013, revenue has risen 11.41%, parallel with larger capital expenditure, which most recently reached CA$1.90B.
Limiting your downside risk is an important part of investing, and financial health is a key determinant on whether PPL is a risky investment or not. Pembina Pipeline's balance sheet is robust, with high levels of cash generated from its core operating activities (0.2x debt) able to service its borrowings. Although its debt level relative to equity is high at 54.57%, it has been declining over the past five years from 59.63%. PPL also generates a sufficient level of earnings which amply covers its annual interest payment 6.16x. The company shows the ability to manage its capital requirements well, increasing my conviction of the sustainability of the business going forward.
PPL is now trading at CA$39.91 per share. With 503.36 million shares, that's a CA$20.10B market cap - which is about right based on an upcoming 2018 free cash flow figure of CA$1.96B, moving towards a positive trajectory at a cumulative average growth rate (CAGR) of -1.64% over the next five years. Based on this analyst consensus CAGR, the target price is CA$36.89, which is roughly around the current share price. This means the stock is currently trading at a relatively fair value. However, comparing PPL's current share price to its peers based on its industry and earnings level, it's overvalued by 37.28%, with a PE ratio of 21.12x vs. the industry average of 15.38x.
PPL has a strong investment case. I'm attracted to the company because of its strong fundamentals - financial health, future outlook and track record. However, at its current share price, right now may not be the best time to invest. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I've taken my data from.
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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
About TSX:PPL
Established dividend payer and fair value.
