RNG Projects And Leadership Additions Will Advance 2025 Prospects

Key Takeaways

• Increased RNG production from landfill projects and expanding fuel station services are expected to boost revenue and stable cash flows positively impacting EBITDA.
  
• Strategic leadership additions and regulatory developments could drive earnings growth and stabilize revenue through enhanced operations and environmental credit sales.
  
• Regulatory and market challenges, including price volatility, environmental credit issues, and slower than expected production, pose risks to revenue growth and earnings.

Catalysts

Engages in the production and distribution of renewable natural gas for use as a vehicle fuel for heavy and medium-duty trucking fleets.

• The development and ramp-up of newly commissioned and existing landfill RNG projects are expected to increase RNG production significantly in 2025, which could positively impact revenue and adjusted EBITDA.
  
• The Fuel Station Services segment is projected to grow its adjusted EBITDA by 30% to 50% in 2025, driven by increased station construction and operation, which could enhance revenue and provide more stable cash flows.
  
• Expected cash proceeds of approximately $50 million from ITC sales in 2025 will bolster both earnings and operating cash flow, contributing to financial growth and potentially increasing net margins.
  
• Strategic leadership additions and enhanced operational capabilities, including new roles such as Chief Financial Officer and EVP of Biogas Operations, are anticipated to improve operational execution and drive overall earnings growth.
  
• The potential regulatory developments regarding RIN prices and the possible resolution of the partial waiver could stabilize and potentially increase revenue from environmental credit sales, thereby impacting overall revenue and EBITDA positively.

OPAL Fuels Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OPAL Fuels's revenue will grow by 17.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 3.6% in 3 years time.
• Analysts expect earnings to reach $17.7 million (and earnings per share of $0.64) by about March 2028, up from $561.0 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 65.9x on those 2028 earnings, down from 100.8x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.7x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.12%, as per the Simply Wall St company report.

OPAL Fuels Future Earnings Per Share Growth

Risks

• The RIN (Renewable Identification Number) price assumption for 2025 is set significantly lower than 2024's realized price, which could potentially lead to reduced revenue and negatively impact adjusted EBITDA.
  
• Timing and pricing issues related to environmental credit sales caused a decrease in revenue, adjusted EBITDA, and earnings in Q4 2024 compared to Q4 2023, illustrating a risk of revenue volatility dependent on regulatory and market conditions.
  
• Regulatory changes in Europe that no longer certify U.S. biogas for regulatory programs have led to a decline in renewable power adjusted EBITDA, indicating risk to future revenue streams if further regulatory challenges arise.
  
• Slower than expected ramp-up at newly commissioned RNG facilities caused production shortfalls in 2024, which could lead to disruptions in revenue growth if similar operational delays persist.
  
• The competitive landscape for RNG project acquisitions could impact growth prospects, and misalignment with expected returns or difficulties in securing favorable funding terms could strain financial margins and impact net earnings.

Valuation

• The analysts have a consensus price target of $5.188 for OPAL Fuels 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 $8.0, and the most bearish reporting a price target of just $2.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $490.5 million, earnings will come to $17.7 million, and it would be trading on a PE ratio of 65.9x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $1.99, the analyst price target of $5.19 is 61.6% 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.