LNG Fleet Expansion Will Capture Future Market Opportunities

Key Takeaways

• Augmenting the LNG fleet and strategic long-term charters will drive future earnings stability and cash flow, leveraging favorable market conditions.
  
• Improved capital engagement and reduced leverage may enhance shareholder returns, trading liquidity, and financial health.
  
• Oversupply of LNG vessels and delayed project startups could suppress charter rates and introduce volatility, impacting Capital Clean Energy Carriers' net margins and earnings.

Catalysts

A shipping company, provides marine transportation services in Greece.

• Despite the current weakness in the LNG spot market, there is a long-term expectation for global energy supply to increase in line with new liquefaction projects coming online between 2025 and 2030, which is anticipated to create a demand-supply gap favoring LNG carriers. This is likely to impact future revenue positively.
  
• The company is set to augment its LNG fleet by 50% with the addition of new vessels by the third quarter of 2027, which positions it well to capitalize on anticipated market recovery and potentially increase earnings as a result of enhanced operational capacity.
  
• CCEC has a significant revenue backlog of $2.5 billion with an average charter duration of 7 years and is actively seeking long-term employment for newbuilds scheduled for delivery from 2026 onwards. This is expected to provide strong cash flow visibility and is likely to enhance future earnings stability.
  
• The company’s strategic initiatives to improve capital market engagement, such as increasing analyst coverage and returning value to shareholders, are expected to improve its trading liquidity and market perception, potentially driving higher share valuation and enhancing shareholder returns.
  
• The current operational strategy is focused on reducing leverage and optimizing the capital base after recent vessel sales, which could improve net margins by reducing interest expenses and enhancing overall financial health.

Capital Clean Energy Carriers Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Capital Clean Energy Carriers's revenue will grow by 25.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.9% today to 42.1% in 3 years time.
• Analysts expect earnings to reach $308.6 million (and earnings per share of $5.23) by about March 2028, up from $6.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.2x on those 2028 earnings, down from 166.9x today. This future PE is greater than the current PE for the US Shipping industry at 4.4x.
• Analysts expect the number of shares outstanding to grow by 6.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.92%, as per the Simply Wall St company report.

Capital Clean Energy Carriers Future Earnings Per Share Growth

Risks

• Oversupply of LNG vessels and lower tonne-mile trading patterns have driven spot market rates to multiyear lows, potentially impacting future revenues as excess supply could continue to suppress charter rates.
  
• The LNG carrier fleet grew significantly with 62 new ships in 2024, but the global energy trade only grew marginally by 1.7%, suggesting an imbalance that could pressure net margins.
  
• Many new vessel deliveries are tied to delayed project startups, increasing exposure to the spot market and adding volatility to earnings.
  
• High newbuilding costs and limited liquidity from long-term charters may challenge capital allocation decisions and impact net leverage ratios negatively.
  
• The company's strategic initiatives to build public profile and increase trading liquidity may take an extended time, potentially delaying positive share price movements and impacting equity returns.

Valuation

• The analysts have a consensus price target of $22.667 for Capital Clean Energy Carriers 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 $26.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $732.2 million, earnings will come to $308.6 million, and it would be trading on a PE ratio of 7.2x, assuming you use a discount rate of 11.9%.
• Given the current share price of $19.65, the analyst price target of $22.67 is 13.3% 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.