LNG Challenges Will Impede Projects But Lead To Resilience

Key Takeaways

• Accelerating decarbonization, technological advances in renewables, and tighter investor standards may threaten LNG demand, financing terms, and long-term growth prospects.
  
• Execution risks from rapid expansion and growing competition could undermine project delivery, constrain pricing power, and compress earnings and operating margins.
  
• High exposure to emerging market risks, uncertain project delivery, and reliance on asset sales threaten revenue stability, margin growth, and long-term energy market competitiveness.

Catalysts

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

• While NFE benefits from the global shift away from coal and oil towards cleaner-burning natural gas, demand for LNG infrastructure in emerging markets could be hampered over the long term if decarbonization policies accelerate or regulatory pressure to achieve net zero emissions suppresses gas demand and shrinks NFE's addressable market, threatening revenue stability.
  
• Although technological innovations in NFE's Fast LNG and modular liquefaction enable faster project delivery and scalable growth, advancements in renewable energy and energy storage technologies may erode LNG's competitiveness faster than anticipated, potentially reducing future project pipeline value and limiting margin expansion.
  
• While NFE's integration across the LNG value chain and ability to secure 20-year take-or-pay contracts underpin a foundation for predictable cash flows and improved net margins, increasing execution risk from aggressive expansion-particularly in Brazil and Puerto Rico-could lead to project delays, cost overruns, or underperformance that weighs on earnings quality.
  
• Despite ongoing ESG-driven investment mandates that initially enhance access to capital for transitional energy projects, tightening global investor standards and growing reluctance to fund fossil fuel-linked ventures may cause NFE's cost of capital to rise, challenging the company's ability to finance growth on favorable terms and pressuring long-term net margin improvements.
  
• While end-user demand for LNG as a marine and transport fuel is rising, and infrastructure decommissioning elsewhere could support premium pricing for NFE's flexible fleet, global LNG market oversupply or increasing competition from subsidized, vertically-integrated energy majors risks eroding pricing power, limiting revenue growth and compressing operating margins over the long term.

New Fortress Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on New Fortress Energy compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming New Fortress Energy's revenue will grow by 23.2% annually over the next 3 years.
• The bearish analysts are not forecasting that New Fortress Energy will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate New Fortress Energy's profit margin will increase from -25.5% to the average US Oil and Gas industry of 15.0% in 3 years.
• If New Fortress Energy's profit margin were to converge on the industry average, you could expect earnings to reach $597.4 million (and earnings per share of $1.78) by about June 2028, up from $-545.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 2.0x on those 2028 earnings, up from -1.1x today. This future PE is lower than the current PE for the US Oil and Gas industry at 12.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

New Fortress Energy Future Earnings Per Share Growth

Risks

• Continued delays or cancellations of government auctions, such as the recent postponement of the Brazil capacity auction, introduce long-term uncertainty in contract wins and revenue visibility for New Fortress Energy, potentially undermining predictable earnings and growth targets.
  
• Heavy concentration of growth initiatives and future contracted cash flows in emerging markets like Brazil and Nicaragua exposes the company to heightened risks of counterparty defaults, currency devaluation, and regulatory unpredictability, which could negatively affect revenue reliability and cash flow stability.
  
• Execution risk around large-scale project delivery, particularly for under-construction or delayed assets like the PortoCem and FLNG 2, may result in timing mismatches, cost overruns, or write-downs, ultimately compressing margins and reducing net income.
  
• The company's reliance on one-off asset sales, such as the recent Jamaica transaction, to bolster liquidity and deleverage the balance sheet may not be sustainable; absent further sales or successful refinancing, high leverage could re-emerge as a threat to future profitability and debt service capacity.
  
• Long-term secular pressures from the global energy transition and advancements in renewable energy and storage technologies could erode the competitiveness of LNG, reducing long-term demand for New Fortress Energy's LNG infrastructure and undermining the potential for sustained revenue and earnings growth.

Valuation

• The assumed bearish price target for New Fortress Energy is $3.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of New Fortress Energy's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $3.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $597.4 million, and it would be trading on a PE ratio of 2.0x, assuming you use a discount rate of 6.4%.
• Given the current share price of $2.28, the bearish analyst price target of $3.0 is 24.0% higher.
• 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.