Expanding FLNG Operations Will Access New Markets, But Regulatory And Debt Challenges Remain

Key Takeaways

• Expansion of FLNG operations and new market access are expected to drive significant revenue growth.
  
• Strategic partnerships and asset sales are anticipated to enhance liquidity by monetizing infrastructure and improving debt structure.
  
• Regulatory and operational challenges, coupled with high debt levels and uncertainty from asset strategies, could strain financial stability and impact future revenue and earnings.

Catalysts

Operates as an integrated gas-to-power energy infrastructure company that provides energy and development services to end-users worldwide.

• Expansion of FLNG operations, including potential capacity enhancements, is likely to drive revenue growth as production increases and new markets are accessed.
  
• The successful completion and operationalization of new projects in Brazil and Nicaragua are anticipated to enhance earnings by adding to cash flow from operations with minimal additional CapEx.
  
• Strategic partnerships and asset sales aimed at monetizing existing infrastructure are expected to increase liquidity and financial flexibility, potentially enhancing net margins by reducing leverage.
  
• The refinancing and extension of debt maturities improve the capital structure, enabling the pursuit of new strategic opportunities which may contribute to earnings growth.
  
• Growing the Jamaican operation as a hub for Caribbean LNG distribution with minimal CapEx could increase revenues and operating margins, leveraging existing infrastructure and long-term contracts.

New Fortress Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New Fortress Energy's revenue will grow by 25.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.8% today to 0.9% in 3 years time.
• Analysts expect earnings to reach $42.6 million (and earnings per share of $0.31) by about December 2027, down from $189.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 85.9x on those 2027 earnings, up from 15.9x today. This future PE is greater than the current PE for the US Oil and Gas industry at 10.9x.
• Analysts expect the number of shares outstanding to decline by 18.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

New Fortress Energy Future Earnings Per Share Growth

Risks

• The company is reducing guidance for the fourth quarter due to maintenance issues, which could impact FLNG operations and result in lower volumes, potentially affecting revenue and earnings.
  
• There are significant uncertainties and complexities in forecasting away from operations because of large individual transactions, which could affect financial projections and overall financial stability.
  
• The company is exploring strategic transactions, including potential asset sales, to deleverage, indicating reliance on external funding or asset liquidation, which could adversely impact future revenue streams.
  
• Despite the refinancing, the company has pushed out a significant portion of its debt to 2029 and increased overall debt, which could affect net margins and future financial flexibility.
  
• There is ongoing uncertainty around regulatory approvals and partnerships, particularly in FLNG 2 and Mexico, which could delay projects and therefore revenue and earnings potential.

Valuation

• The analysts have a consensus price target of $19.62 for New Fortress Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.8 billion, earnings will come to $42.6 million, and it would be trading on a PE ratio of 85.9x, assuming you use a discount rate of 10.9%.
• Given the current share price of $11.94, the analyst's price target of $19.62 is 39.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.