Integrated gas-to-power infrastructure company New Fortress Energy Inc. (NFE) in New York City provides energy and development services to end-users worldwide. The company is new to the LNG-export business but intends to start supplying as much as 11 million metric tons of super-chilled fuel annually within a few years, which is almost 16% of total U.S. exports.

The company recently filed with federal regulators to build an offshore liquefied natural gas (LNG) export project off the Louisiana coast that could enter service as soon as the first quarter of 2023. NFE seeks to fast-track LNG production and benefit amid the supply-demand imbalance caused due to the Russia-Ukraine war while also aiding President Biden’s recently announced goal of sending more LNG to Europe. Demand is rising, especially in Europe, which is heavily dependent on Russian gas. Furthermore, Russia’s threat to cut energy supplies is pushing up super-chilled fuel prices. On the other hand, NFE’s LNG project in Pennsylvania has been placed on hold due to some opposition by environmental groups. The company is required to obtain a new air permit from the state to begin the construction of the proposed plant.

NFE shares have gained 73.8% in price year-to-date as investors have rushed to buy energy stocks amid the Russia-Ukraine war. However, the stock is down 9.3% over the past year, closing yesterday’s session at $41.96.

Here is what could shape NFE’s performance in the near term:

Premium Valuation

In terms of forward EV/Sales, NFE is currently trading at 5.92x, which is 168.9% higher than the 2.20x industry average. Also, its 3.96 forward Price/Sales ratio is 153.3% higher than the 1.56 industry average.76x  NFE’s forward Price/Cash Flow  is 182.1% higher than the 5.23x industry average.

Significant Debt Burden

The company has $4.16 billion in total debt, while its net debt came in at $3.97 billion. Moreover, its insufficient cash inflows raise concerns regarding its debt repayment capacity. Its trailing-12-month net operating cash flow came in at $84.77 million, but its trailing-12-month levered free cash flow stood at a negative $430.72 million, resulting in a negative 11.34 debt/free cash flow ratio. Also, NFE’s quick ratio stands at 0.78, questioning its ability to pay its liabilities.

Mixed Profitability

NFE’s 47.27% and 7.34% respective gross profit and net income margins are 17% and 0.3% higher than the 40.40% and 7.32% industry averages.

However, its negative 32.56% levered FCF margin compares with the 8.32% industry average. Its 1.41% and 4.49% respective ROA and ROTC are 52% and 3.4% lower than the industry averages.

Unfavorable POWR Ratings

NFE has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a D grade for Stability, consistent with its 1.56 beta.

NFE has an F grade for Value. Its stretched valuations justify this grade.

Among the 44 stocks in the Energy - Services industry, NFE is ranked #41.

Beyond what I have stated above, one can also view NFE’s grades for Sentiment, Growth, Momentum, and Quality here.

View the top-rated stocks in the Energy – Services industry here.

Bottom Line

NFE intends to advance its LNG projects fast to capitalize on the growing demand. However, its projects are not yet operational and are expected to take some time before operating at full capacity. Furthermore, its significant debt burden is concerning. Also, considering its lofty valuation and high beta, indicating volatility, the stock looks less attractive compared to its peers. Thus, I think it could be best to avoid the stock now.

How Does New Fortress Energy Inc. (NFE) Stack Up Against its Peers?

While NFE has an overall POWR Rating of D, one might want to consider investing in the following Energy – Services stocks with a B (Buy) rating: North American Construction Group Ltd. (NOA), Archrock, Inc. (AROC), and NOW Inc. (DNOW).

NFE shares were unchanged in premarket trading Wednesday. Year-to-date, NFE has gained 74.40%, versus a -7.43% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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