Urbanization And Decarbonization Will Energize LNG Infrastructure

Key Takeaways

• Regional expansion, innovation in LNG distribution, and integration strategies give Excelerate a strong advantage for recurring earnings and outsized revenue growth in key markets.
  
• Limited supply of advanced LNG assets and technological leadership provide significant pricing power, supporting higher network margins and robust global expansion potential.
  
• Decarbonization trends and advances in renewables threaten Excelerate Energy's growth, margins, and financing by undermining LNG demand, contracts, and asset competitiveness.

Catalysts

Provides liquefied natural gas (LNG) solutions worldwide.

• Analyst consensus expects the Jamaica acquisition to drive incremental EBITDA mainly through integration and regional expansion, but platform results are already exceeding expectations, and with a 21-year contract profile, Excelerate could achieve faster and more substantial recurring earnings and margin expansion, suggesting EBITDA outperformance and enhanced return on invested capital.
  
• While analysts broadly see demand for FSRUs like Hull 3407 supporting future growth, the supply-demand imbalance in high-spec LNG infrastructure and Excelerate's technological leadership point to much higher pricing power-and, as a result, the potential for materially higher fleet-wide net margins and earnings than currently modeled.
  
• With Excelerate actively innovating around small-scale LNG distribution and establishing Jamaica as a cost-advantaged regional hub, the company is positioned to unlock a first-mover advantage in the rapidly urbanizing and industrializing Caribbean and Latin American markets, with potential for outsized revenue growth and high-margin downstream recurring revenues as energy demand surges.
  
• The push for decarbonization and accelerated fuel switching in emerging markets creates the prospect for exponential addressable market expansion, and Excelerate's integrated value chain and flexible business model position it to capture substantial incremental demand-driving sustained growth in both contract volumes and throughput.
  
• Excelerate's balance sheet strength and disciplined capital deployment enable accelerated project execution globally, supporting simultaneous growth initiatives in Asia, Europe, and the Caribbean, which collectively point to a higher revenue growth trajectory and multi-year step-change improvement in shareholder returns.

Excelerate Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Excelerate Energy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Excelerate Energy's revenue will grow by 40.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 3.6% today to 3.3% in 3 years time.
• The bullish analysts expect earnings to reach $90.2 million (and earnings per share of $2.69) by about August 2028, up from $36.0 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 82.2x on those 2028 earnings, up from 21.7x today. This future PE is greater than the current PE for the US Oil and Gas industry at 13.2x.
• 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 7.58%, as per the Simply Wall St company report.

Excelerate Energy Future Earnings Per Share Growth

Risks

• The global acceleration of decarbonization and net-zero targets could reduce demand for LNG and fossil fuels, thereby threatening Excelerate Energy's core contracted revenue and the long-term value of its asset portfolio.
  
• Rapid advancements in renewable energy and battery storage technologies may make alternative power sources more cost-competitive, eroding Excelerate's growth prospects and limiting future earnings and margin expansion.
  
• Overreliance on long-term take-or-pay contracts in a few key regions, as well as a focus on growth in the Caribbean through the Jamaica platform, exposes the company to significant revenue volatility if contract renewals fail or local markets adopt more aggressive decarbonization policies.
  
• The company's asset base, especially its FSRU fleet, could require substantial and increasing capital expenditures to maintain competitiveness in an environment of tightening emissions regulations and industry overcapacity, which could cut into future net margins and free cash flow.
  
• Growing investor and regulatory pressure to limit financing of fossil-fuel projects may increase Excelerate's cost of debt and make funding for fleet expansion or refinancing more difficult, putting additional pressure on balance sheet strength and long-term earnings potential.

Valuation

• The assumed bullish price target for Excelerate Energy is $42.84, which represents two standard deviations above the consensus price target of $33.73. This valuation is based on what can be assumed as the expectations of Excelerate Energy'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 $43.0, and the most bearish reporting a price target of just $26.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $90.2 million, and it would be trading on a PE ratio of 82.2x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $24.4, the bullish analyst price target of $42.84 is 43.0% 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.