Expansion In High-Potential Markets May Boost Future Prospects Despite Margin Concerns

Key Takeaways

• Stabilis' focus on high-potential markets and infrastructure expansion positions it for increased revenue and an expanded customer base.
  
• Strong cash generation and disciplined investments in small-scale LNG enhance margins, supporting long-term growth and earnings.
  
• Vulnerability to commodity price fluctuations, reliance on new contracts, and limited engagement in high-growth markets pose risks to future revenue and margins.

Catalysts

An energy transition company, provides clean energy production, storage, transportation, and fueling solutions primarily using liquefied natural gas (LNG) to various end markets in North America.

• Stabilis is prioritizing growth within high-potential markets, such as marine, aerospace, and distributed power solutions, which could lead to increased revenue as these markets expand.
  
• The company invested heavily in infrastructure along the U.S. Gulf Coast, preparing to serve new and existing customers, indicating future revenue growth through an expanded customer base.
  
• Stabilis is focusing on repositioning their capabilities to meet the growing demand for small-scale LNG, a move that could enhance net margins by tapping into higher-demand segments.
  
• With a disciplined capital allocation strategy, Stabilis aims to drive long-term value creation, potentially improving earnings through strategic investments in high-growth areas.
  
• Stabilis has low net debt and strong cash generation, positioning them well for future growth investments which could significantly increase earnings and shareholder value.

Stabilis Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Stabilis Solutions's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.3% today to 2.7% in 3 years time.
• Analysts expect earnings to reach $2.4 million (and earnings per share of $0.14) by about March 2028, down from $4.6 million 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 96.0x on those 2028 earnings, up from 20.5x 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 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.34%, as per the Simply Wall St company report.

Stabilis Solutions Future Earnings Per Share Growth

Risks

• The decline in revenue during the fourth quarter due to lower oil and gas customer revenues and decreased natural gas prices could signal vulnerability to commodity price fluctuations, impacting future revenue growth.
  
• Significant capital expenditures are anticipated for growth investments in marine and aerospace markets, requiring larger financing decisions that present risks if the expected demand does not materialize, potentially affecting net margins.
  
• The company's reliance on securing new contracts and customers to drive growth, particularly in emerging markets like marine and aerospace, carries execution and demand risks that could affect future revenue streams.
  
• The decreased G&A expenses due to adjustments and timing-related changes in professional services may not be sustainable, which could lead to higher operating costs that might squeeze net margins if not managed efficiently.
  
• Limited current engagement in the high-growth data center market and a focus on traditional sectors might hinder capturing emerging opportunities, affecting the company's ability to capitalize on rapidly growing revenue streams like AI-related applications.

Valuation

• The analysts have a consensus price target of $10.5 for Stabilis Solutions 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 $12.0, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $89.3 million, earnings will come to $2.4 million, and it would be trading on a PE ratio of 96.0x, assuming you use a discount rate of 7.3%.
• Given the current share price of $5.08, the analyst price target of $10.5 is 51.6% 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.