On today’s TSX Breakouts report, there are 85 stocks on the positive breakouts list (stocks with positive price momentum) with just three securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a dividend stock that appears on the positive breakouts list, whose share price has rallied nearly 21 per cent year-to-date. Along with price appreciation, the stock offers investors an attractive yield, currently yielding 4.7 per cent, combined with steady dividend growth. The stock has 19 buy recommendations with a potential 16 per cent total return forecast. The security highlighted today is Pembina Pipeline Corp. (PPL-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Pembina is a midstream service provider for the North American energy industry. The company owns and operates pipelines that transport products derived from natural gas and hydrocarbon liquids. In addition, Pembina owns and operates gas gathering and processing facilities, as well as an oil and natural gas liquids infrastructure business. The company has three core reporting segments – pipelines, facilities, and marketing and new ventures.
After the market closed on Feb. 21, the company reported a relatively in-line quarter with record financial results for the year. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $715-million, just shy of the $721-million consensus estimate and up 6 per cent year-over-year. Adjusted EBITDA for the year was a record $2.835-million, up 67 per cent year-over-year driven higher by the acquisition of Veresen Inc. in Oct. 2017. The company has a healthy balance sheet. At year-end, the debt-to-adjusted EBITDA ratio stood at 3.5 times, below management’s target range of between 3.75 times and 4.25 times. Management is forecasting this ratio will increase slightly to 3.8 times in 2019.
On the earnings call, the president and chief executive officer Mick Dilger remarked on the financial results and provided a positive outlook for 2019 stating, “2018 was, simply said, an outstanding year for Pembina. We placed approximately $900-million of projects into service, and secured over $1.8-billion of new capital projects. In 2019, we have already added Phase VIII Peace Pipeline expansions as well as sanctioned our PDH/PP facility bringing our total capital backlog of secured projects to about $5.5 billion.” For 2019, management anticipates adjusted EBITDA will remain steady, coming in at between $2.8-billion and $3-billion, compared to $2.835-billion reported in 2018. Management has a $1.6-billion capital program for 2019, which it believes can be finance internally (no need for an equity financing).
The stock is dual-listed, trading on the Toronto Stock Exchange under the ticker, PPL, and on the New York Stock Exchange under the ticker, PBA.
Dividend policy
The company pays shareholders a monthly dividend of 19 cents per share, or $2.28 per share on a yearly basis. This translates to an annualized dividend yield of 4.7 per cent.
The company has increased its dividend at least once in each calendar year since 2012. Its most recent dividend hike was announced in May of 2018, a 5.6 per cent dividend increase. Between 2007 and 2018, the compound annual dividend growth rate is approximately 5 per cent.
Analysts’ recommendations
This large-cap stock with a market capitalization of over $24-billion is well-covered by the Street. Since reporting its fourth-quarter earnings results last month, 20 analysts have issued research reports, of which 19 are ‘buy’ recommendations and one analyst (from Morningstar) has a ‘hold’ recommendation.
Revised recommendations
Last month, nine analysts revised their expectations for the stock – all higher.
TD Securities’ analyst Linda Ezergailis hiked her target price up to $54 from $52. Robert Kwan, the analyst at RBC Capital Markets, raised his target price by $1 to $55. Energy infrastructure analyst Robert Catellier at CIBC Capital Markets lifted his target price to $54 from $52. National Bank Financial’s Patrick Kenny increased his target price by $1 to $58. Robert Hope from Scotiabank bumped his target price to $54 from $53. Tyler Reardon, the analyst at Peters & Co. took his target price up to $54 from $53. Ian Gillies, the analyst at GMP FirstEnergy, increased his target price to $58 from $56. Elias Foscolos, the analyst at Industrial Alliance Securities, lifted his target price to $55 from $54. Tom Hems at Macquarie bumped his target price up by $2 to $57.
Financial forecasts
The consensus EBITDA estimates are $2.92-billion in 2019 and $3.11-billion in 2020. The consensus AFFO per share estimates are $4.31 in 2019, rising 8 per cent to $4.64 in 2020.
Financial forecasts have edged lower for 2019. To illustrate, three months ago, the EBITDA forecast was $2.94-billion and the AFFO per share consensus estimate was $4.40.
Valuation
Analysts commonly value the stock using a discounted cash flow methodology, using an enterprise value-to-EBITDA multiple, or on a price-to-AFFO basis.
According to Bloomberg, the stock is trading at an EV/EBITDA multiple of 11.8 times the 2019 consensus estimate, below the three-year historical average multiple of 14.3 times. On a price-to-AFFO basis, the stock is trading at a multiple of 11.3 times the 2019 consensus estimate.
The average one-year target price is $54.58, implying the share price may appreciate nearly 12 per cent over the next 12 months, providing a total return of over 16 per cent (including the 4.7 per cent dividend yield). Target prices range from a low of $43 (an outlier, the low on the Street is from the analyst at Morningstar) to a high of $58 (the high on the Street is shared by analysts from four firms - National Bank Financial, Canaccord Genuity, Cormark Securities and GMP FirstEnergy). Individual target prices provided by 19 firms are as follows in numerical order: $43, $51, $52, $53, five $54, two at $55, two at $56, two at $57, and four at $58.
Insider transaction activity
Last month, there were two transactions in the public market reported by insiders – both sales.
In a relatively small transaction, on Feb. 28, John de la Mare, vice-president – conventional pipelines, sold 500 shares at a price per share of $48.22 for an account in which he has indirect ownership (RESP), leaving 1,500 shares in this account, Proceeds from the sale totaled approximately $24,000.
On Feb. 25, corporate services officer Paul Murphy exercised his options, receiving 7,500 shares, and sold 6,946 shares at a price per share of $47.64 with 12,958 shares remaining in his portfolio. Proceeds from the sale amounted to over $330,000.
Chart watch
The stock chart is attractive with the share price breaking above a consolidation range of between $40 and $46 that it had been trading in for over the past two years.
Year-to-date, the share price is up nearly 21 per cent and recently exhibited a “Golden Cross” – a bullish technical signal that occurs when the 50-day moving average crosses above the 200-day moving average.
In terms of key resistance and support levels, the initial ceiling of resistance is around $50. After that, there is major overhead resistance around $53, close to is all-time closing high of $52.87 set back in 2014. Looking at the downside, the shares price has strong technical support around $45, near its 50-day moving average (at $45.09) and its 200-day moving average (at $44.91).
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
Jennifer Dowty