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New Fortress Energy: Where Growth Meets Value
Stock Analysis & Ideas

New Fortress Energy: Where Growth Meets Value

New Fortress Energy (NFE) is an American integrated gas-to-power company. It is committed to providing innovative solutions for creating affordable, clean, and sustainable energy that can have a positive environmental impact. The company currently serves North America, the Caribbean, and Europe. (See Analysts’ Top Stocks on TipRanks)

I am bullish on New Fortress Energy because shares look inexpensive now compared to recent historical valuation multiples. The company has significant growth tailwinds from its presence in the clean energy sector, and Wall Street is overall bullish on the stock here.

Strengths

New Fortress Energy constructed a floating LNG terminal worth almost $1 billion in Jamaica’s Old Harbor Bay in 2019, resulting in cheaper energy costs for the country. 

The company has also been involved in several deals, including the 2020 partnership with H2Pro, a startup that develops affordable green hydrogen technology. In 2021, the company announced its acquisition of Hygo Energy Transition Ltd and Golar LNG Partners LP to expand its presence in Brazil.

New Fortress Energy has also signed eight new sales agreements in Brazil for 5.8mm committed gallons per day and signed a gas sales agreement with an industrial customer in North East Brazil. 

The company secured LNG supply at almost 100% capacity for its terminals and assets across the Caribbean, Central America, and Mexico. It has also signed five new direct sales customer agreements with approximately 50,000 new GPD of committed volumes.

Recent Results

New Fortress Energy recorded quarterly revenue of $223.8 million, showing an increase of $78.1 million since the first quarter of 2021. The company saw a rise in the Terminals and Infrastructure segment operating margin, which was attributed to the effective share of cost and revenue of the Porto de Sergipe power plant in Brazil.

The average daily volume sold in the third quarter of 2021 was approximately 1764k GPD, while the total segment operating margin was $210.5mm, showing an increase of 268k GPD and $80.5mm, respectively. 

This increase has been attributed to increased volumes and gas sales.

The Ships segment also saw an increase due to higher charter hire for vessels trading in the spot market and continuous operations during the full quarter.

The total segment operating margin in the third quarter of 2021 was a record $210.5 million, beating the target of $208 million. The total segment operating margin goal for Q2 2021 is $585 million, which is a 50% increase from the previous goal set in July.

The total segment operating margin projection for the Fiscal Year 2022 is $1.1 billion, with earnings increases from Brazil and Ireland and its Fast LNG plan, a floating liquefaction project.

Valuation Metrics

New Fortress Energy’s stock looks attractively priced at the moment, as the EV/EBITDA ratio is currently 12.1x, which is discounted relative to its historical average of 16.6x.

Wall Street’s Take

Turning to Wall Street, New Fortress Energy earns a Strong Buy consensus rating based on six Buys and one Hold rating assigned in the past three months. The average New Fortress Energy price target of $49.86 implies 85.4% upside potential.

Summary and Conclusion

New Fortress Energy has a significant growth runway ahead of it, given its investments across the clean energy space. Furthermore, the stock price looks quite attractive right now. Given that it trades at a substantial discount to historical valuation multiples, Wall Street analysts are nearly unanimously bullish on it.

The consensus price target implies significant upside potential over the next year. As a result, investors might want to consider adding a position during this latest pullback in the share price.

Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.

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