Pembina Pipeline: A Long-Term Buy Amid Resilient Cash Flows and Strategic Growth

Pembina Pipeline Corporation (TSX:PPL) has emerged as a compelling long-term investment opportunity, driven by robust cash flow generation, an undervalued stock, and a pipeline of strategic projects poised to capitalize on energy sector tailwinds. Despite near-term headwinds such as seasonal volatility and geopolitical risks, the company's fundamentals suggest it is well-positioned to outperform peers over the coming years.

Resilient Cash Flows Anchor Value

Pembina's first-quarter 2025 results underscore its financial resilience. While adjusted cash flow per common share dipped slightly to $1.34 from $1.42 in Q1 2024, total cash flow from operations surged to $840 million—a 93% increase from $436 million a year earlier (

). This strength stems from higher revenues ($2.28 billion in Q1 2025 vs. $1.54 billion in 2024) and operational efficiencies across its pipelines, facilities, and LNG businesses. The dividend hike to $0.71 per share (a 3% increase) further signals confidence in Pembina's ability to sustain payouts even amid fluctuating commodity prices.

Undervalued Relative to Peers and Growth Prospects

Pembina's valuation appears attractive compared to its peers and the broader energy sector. Its trailing P/E ratio of 16.8x as of June 2025 is below the peer average of 18.6x, which includes companies like Targa Resources (TRGP, 30.3x) and Williams Partners (WMB, 31.4x). Meanwhile, its P/E remains elevated relative to the U.S. Oil & Gas industry average of 11.9x, but this reflects higher growth expectations. Analysts estimate Pembina's intrinsic fair value at $99.29 per share—nearly 164% above its June 2025 price of $37.56—based on discounted cash flow models.

The disconnect between Pembina's valuation and its growth trajectory creates a compelling entry point. Its EV/EBITDA ratio of 12.7x also compares favorably to its 10-year historical average of 10.16x, suggesting it is undervalued on a relative basis.

Strategic Projects to Drive Long-Term Growth

Pembina's portfolio of projects positions it to capitalize on rising energy demand and market diversification:
1. Cedar LNG: With 1.5 million tonnes per annum capacity, Pembina is advancing non-binding proposals that exceed contracted volumes, targeting Asian and European markets.
2. RFS IV and De-ethanizer: These expansions will boost utilization at the Redwater Complex, supporting higher NGL processing margins.
3. Wapiti Expansion: This project will increase pipeline capacity in Alberta's Montney region, locking in long-term take-or-pay agreements with producers.

These initiatives align with Pembina's strategy to reduce U.S. market reliance—critical as trade tensions persist—and capitalize on Canada's energy renaissance.

Risks and Considerations

While Pembina's prospects are promising, risks remain:
- Regulatory and Permitting Delays: Projects like Cedar LNG require approvals that could be delayed.
- Commodity Volatility: Natural gas and oil prices remain unpredictable, though Pembina's fee-based revenue model (80% of cash flow) mitigates this risk.
- Debt Management: Though not explicitly stated, maintaining its investment-grade credit profile will be key as capital expenditures rise.

Investment Thesis and Conclusion

Pembina Pipeline offers a rare combination of defensive cash flows, an undervalued stock, and high-growth projects. With a dividend yield of 4.7% and a 12-month price target of $44.23 (implying 18% upside), the stock appears attractive for income investors and growth-oriented buyers alike.

Recommendation: Investors should consider accumulating Pembina on dips below $38. The stock's valuation gap relative to its fair value and the execution of its LNG and infrastructure projects make it a top pick for energy portfolios.

As Pembina continues to diversify its markets and expand its asset base, its shares could re-rate higher—making it a standout long-term buy in an energy sector undergoing transformation.