Editor's Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Key Morningstar Metrics for Pembina Pipeline
- Fair Value Estimate: C$53.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: Medium
After taking a fresh look, we’ve lowered no-moat-rated Pembina Pipeline’s PPL fair value estimate to C$53 per share from C$55. Management indicated that toll negotiations for the Canadian section of the Alliance pipeline are likely to result in a negative outcome, with rates expected to decline. The exact timing is unknown, as discussions are ongoing. Further uncertainty around US tolls is now likely weighing on shares, which are up for review at the end of the year.
To complicate things further, a Dow ethylene cracker expansion that is to be supplied by Pembina has been delayed but not cancelled. Phases one and two were expected to come online in 2027 and 2029, respectively. The delay is meant to save Dow $600 million this year—most of the firm’s $1 billion reduction in capital plans. Dow will revisit the plan at the end of 2025, suggesting to us at least a year delay.
We assign a medium uncertainty to Pembina. While there is substantial volatility in the oil and gas industry, Pembina possesses strong contracts with take-or-pay provisions. 65%-70% of its revenue is tied to these provisions, with only 10%-20% directly exposed to the movements in commodity prices. So, we have a great deal of confidence in the firm’s ability to sustain dividends and invest in new opportunities as they become available.
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