We came across a bullish thesis on New Fortress Energy (NFE) on Value Degen’s Substack by Unemployed Value Degen and The ROI Club. In this article we will summarize the bulls’ thesis on NFE. New Fortress Energy share was trading at $10.36 as of Sept 11th.
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New Fortress Energy (NFE) represents a unique opportunity in the liquefied natural gas (LNG) market. The company has carved out a distinct niche by capturing a significant stretch of the LNG value chain, from liquefaction to regasification and power generation, with a strong focus on markets in Brazil and Puerto Rico, and smaller ventures in Nicaragua, Mexico, and Jamaica. NFE’s innovative approach includes building offshore liquefaction facilities to bypass regulatory hurdles and quickly ramp up production, making it a formidable competitor to established players like Warren Buffett’s Cove Point in Maryland.
NFE owns 11 LNG carriers, seven of which have regasification capabilities, enabling it to control both the transport and end-use of LNG. This vertical integration allows NFE to capitalize on its unique market position, especially in regions with high jurisdictional risks for fossil fuels. With a second liquefaction facility under construction in Mexico, NFE is well-positioned to benefit from the global demand for LNG.
The company’s leadership, particularly founder and CEO Wes Edens, who owns 15% of the company, is aligned with shareholders’ interests, minimizing the risk of dilution. This management strategy, combined with a commitment to vertical integration, positions NFE as a long-term player in the LNG market. Even with volatile U.S. natural gas prices, NFE’s strategy benefits from lower domestic prices, making it a compelling counterbalance in an energy-heavy portfolio.
NFE is transitioning from a development-focused to an operating company, which is likely to unlock substantial value. The company’s capital expenditures peaked at $3 billion in 2023, funded by a mix of operating cash flow and debt issuance. Going forward, capex is projected to stabilize at $1.5 billion annually, supported by asset-backed financing and the sale of completed projects to manage debt and fuel growth. Additionally, NFE plans to IPO its Brazilian business and bring in a JV partner, which could lead to a multiple rerating given the long-term nature of Brazilian power contracts.
Despite a short operating history, NFE is poised for growth. The company’s guidance suggests $7 per share in 2025 earnings, which, at the current price-to-earnings ratio of 11, implies a price target of $77. For investors seeking exposure to the expanding LNG sector with multiple catalysts for growth, NFE offers an attractive risk/reward profile with significant upside potential.
Having said this, the company isn’t as cheap as it looks. Value Degen failed to mention that NFE’s market cap is $2 billion but the company’s enterprise value is $10 billion according to Yahoo Finance. Its net debt is 4 times its market cap. This means the market believes there is a decent probability that NFE may declare bankruptcy under its huge debt load. So, before snapping up shares of “low forward P/E stocks” you need to take a look at the debt load of these companies.
New Fortress Energy is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held NFE at the end of the second quarter which was 18 in the previous quarter. While we acknowledge the risk and potential of NFE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NFE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.