On Thursday, Morgan Stanley adjusted its stance on New Fortress Energy (NASDAQ:NFE) stock, shifting from an Overweight rating to Equalweight, and significantly reduced the stock's price target to $15 from the previous $35. This decision comes as New Fortress Energy faces various financial challenges.
The company has been grappling with project delays and cost overruns, particularly with its floating liquefied natural gas (FLNG (OL:FLNG)) developments. Additionally, the early termination of a Federal Emergency Management Agency (FEMA) contract in Puerto Rico has added to the company's balance sheet concerns.
New Fortress Energy's stock has been under pressure due to these issues over the last several quarters. In recent days, the company has taken measures to mitigate liquidity and refinancing risks. These steps include the restructuring of some of its outstanding debt and the launch of a $400 million equity issuance. In response to these measures, Morgan Stanley has updated its financial model for New Fortress Energy to reflect the latest developments.
The revised model from Morgan Stanley removes the previously included "upside" growth assumptions that were based on potential new projects in Puerto Rico and Brazil. The firm believes that, moving forward, New Fortress Energy's primary focus should be on operational execution, which involves successfully bringing its growth projects that are currently under construction into operation.
The new price target of $15 per share takes into account several factors. The removal of the anticipated growth from new projects, an increase in the number of shares due to the equity issuance, and higher interest expenses have all contributed to the recalibrated target. Morgan Stanley's reassessment indicates a more conservative outlook on the company's financial prospects.
In other recent news, New Fortress Energy Inc. has been focusing on strategic financial transactions to restructure its debt and enhance liquidity, with deals totaling approximately $3 billion. This includes a plan to issue around $2.6 billion of senior secured notes due in 2029 and a public offering of its Class A common stock, raising $400 million. The CEO, Wes Edens, personally invested approximately $50 million in this offering. These developments are expected to provide New Fortress Energy with $725 million of new capital and extend the debt maturities across the company's balance sheet.
In addition to financial restructuring, New Fortress Energy has marked its entry into the LNG market with its first full cargo of liquefied natural gas from its Fast LNG asset located offshore of Altamira, Mexico. Analysts from Deutsche Bank and BTIG have given their perspectives on the company's recent moves, with Deutsche Bank downgrading the stock from Hold to Sell and BTIG maintaining a Buy rating but reducing its price target.
New Fortress Energy reported a Q2 2024 EBITDA of $120 million, falling short of the targeted $275 million due to delays in deploying the FLNG 1 asset. However, the company now expects this asset to generate $500 million in annual free cash flow. Despite the initial setback, the company projects a positive outlook with quarterly earnings of $275 million for the rest of the year and an annual EBITDA range between $1.4 billion and $1.5 billion. These are indeed recent developments for New Fortress Energy.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on New Fortress Energy's (NFE) financial situation, providing context to Morgan Stanley's downgrade. The company's market capitalization currently stands at $2.25 billion, with a P/E ratio of 7.38, suggesting a relatively low valuation compared to earnings. This aligns with the stock's recent pressures mentioned in the article.
NFE's revenue for the last twelve months as of Q2 2024 was $2.36 billion, with a revenue growth of -1.16% over the same period. This slight decline in revenue supports the article's discussion of the company's financial challenges. The company's gross profit margin of 57.56% indicates a strong ability to control costs of goods sold, which could be crucial as NFE focuses on operational execution.
InvestingPro Tips highlight that NFE's dividend yield is currently at 4.47%, which may attract income-focused investors despite the company's challenges. Another tip notes that NFE's stock price is trading at a significant discount to its fair value based on analyst price targets, with a fair value of $19 compared to the previous close of $8.94. This discrepancy might reflect the market's current skepticism about the company's prospects, as outlined in the Morgan Stanley analysis.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for New Fortress Energy, providing a deeper understanding of the company's financial health and market position.
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