Clean Energy Transition And Waste Valorization Will Transform RNG Adoption

Key Takeaways

• OPAL Fuels is positioned for accelerated long-term growth and market dominance in landfill RNG through project expansion, vertical integration, and beneficial regulatory shifts.
  
• Strategic M&A and deepening relationships with large fleet operators will enhance operational leverage, recurring cash flow, and earnings resilience amid evolving trucking and energy sectors.
  
• Reliance on regulatory incentives and exposure to stricter emissions standards, credit market volatility, and project delays threaten OPAL Fuels' profitability and market position.

Catalysts

Engages in the production and distribution of renewable natural gas (RNG) for use as a vehicle fuel for heavy and medium-duty trucking fleets throughout the United States.

• Analysts broadly agree that newly commissioned and existing landfill RNG projects will drive significant production and revenue growth in 2025, but this likely underestimates the longer-term compounding effects of OPAL's secured multi-year pipeline and continued acceleration in new project starts, setting the company up for outsized top-line and EBITDA growth well beyond 2026.
  
• Analyst consensus credits the Fuel Station Services segment for robust EBITDA growth as OPAL expands its network, but this view may underappreciate the structural tailwinds from regulatory clarity, policy shifts favoring RNG for heavy trucking, and OPAL's increasing ownership of stations, which collectively position net margins and recurring cash flows for a step-change upwards as downstream integration deepens.
  
• Recent bipartisan federal legislation and the extension of key production tax credits not only enhance short-term EBITDA but fundamentally derisk and extend policy support for at least four more years, ensuring sustained high-margin cash generation and protecting project returns during periods of volatile environmental credit pricing.
  
• As heavy-duty trucking fleets increasingly recognize the scalability and cost advantage of RNG over electric or hydrogen solutions, OPAL's entrenched relationships with national fleet operators and ability to deploy vertically integrated solutions place the company as the dominant RNG supplier to a commercial transport market that could expand faster than nearly all expectations, transforming revenue visibility.
  
• With sector consolidation accelerating and OPAL emerging as the premier acquirer thanks to its scale, capital flexibility, and platform efficiency, further M&A activity or industry roll-ups could bring outsized operational leverage and synergies, driving both rapid market share gains and long-term earnings power beyond organic growth.

OPAL Fuels Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on OPAL Fuels compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming OPAL Fuels's revenue will grow by 20.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.5% today to 3.8% in 3 years time.
• The bullish analysts expect earnings to reach $21.6 million (and earnings per share of $0.79) by about August 2028, up from $1.6 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 bullish analyst cohort, the company would need to trade at a PE ratio of 53.5x on those 2028 earnings, up from 40.9x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.8x.
• Analysts expect the number of shares outstanding to grow by 1.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

OPAL Fuels Future Earnings Per Share Growth

Risks

• Accelerating electrification of transportation and renewed focus on hydrogen solutions present a long-term risk, as more fleets and policymakers shift to zero-emission technologies, this trend could constrict OPAL Fuels' addressable market and reduce future revenue streams.
  
• Stricter emissions standards and evolving carbon policies may diminish the favorable green status of RNG; if government incentives, RINs or production and investment tax credits are reduced or eliminated, net margins and earnings could decline since a significant portion of profitability depends on these subsidies.
  
• Project execution risk is evident from permitting delays (notably with the Kirby project in California) and the general slowness in market adoption and fleet conversions, which can lead to variability in capital expenditures, delayed revenue recognition, and uncertain earnings growth.
  
• OPAL Fuels is exposed to changes in RIN prices and credit markets, as seen with this year's drop in RIN prices and expiration of certain carbon credits; a structural decline in environmental credit value or volatility would negatively impact both revenue and bottom-line earnings.
  
• Heightened scrutiny over methane leakage and regulatory uncertainty regarding EPA rulings and cellulosic RNG classification could impose higher compliance costs, operational expenses, and affect project economics, directly pressuring long-term operating margins.

Valuation

• The assumed bullish price target for OPAL Fuels is $5.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of OPAL Fuels's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $576.0 million, earnings will come to $21.6 million, and it would be trading on a PE ratio of 53.5x, assuming you use a discount rate of 8.1%.
• Given the current share price of $2.25, the bullish analyst price target of $5.0 is 55.0% 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.