With so many stocks hitting 52-week highs lately, you would think the irrational exuberance would affect even the worst of stocks, but that doesn't seem to be the case.
As I write this on Tuesday morning, New Fortress Energy (NFE) is in the 92nd spot on Barchart’s Bottom 100 Stocks to Buy, up five spots from Monday. It is by far the largest name on the list, with a market cap of $2.38 billion. The next highest is Wolfspeed (WOLF) at $1.14 billion and in the 81st spot.
There are a lot of terrible businesses on Barchart’s list. The debate over New Fortress seems to be leaning in that direction with its stock down 71% over the past 52 weeks and trading at its lowest point since March 2020.
While it might be the largest of the Bottom 100, that doesn’t necessarily make it a speculative buy despite its trading in single digits. On the other hand, its gas-to-power business model remains an important one that was once valued at well over $25 billion.
If you’re an aggressive investor, here’s why you might want to make a bet on it.
New Fortress Makes Money
The company reported Q3 2024 results on Oct. 7. Its revenue was $515 million, down 9% from a year ago, with adjusted earnings per share of 5 cents, 81% lower than a year ago. Despite the lower results, the top line results were 18% higher than the analyst estimate while its EPS was 25% higher than Wall Street’s consensus of four cents.
The company expects its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to be $855 million in 2024, down from $1.3 billion in 2023, but still profitable on a non-GAAP basis.
On the March 1 Q4 2023 conference call, New Fortress CEO and founder Wes Edens said that its FFO (funds from operations) would be $6 or more in 2024, up from $3.56 in 2023 and $1.61 in 2022. Edens said it could reach $8 or more by the end of 2026.
“Obviously the combination of core earnings at $6-plus a share along with the 50% growth rate over the last year and projected for this year, plus a 10-year plus duration of our portfolio gives us a significant competitive advantage, and we feel very undervalued at these levels, but now this is something that with these results, we think we can go and attack that aggressively,” Edens said in the conference call.
It Has a Lot of Debt
Eight months later, we know that’s not the case. After the second quarter, it stopped using the FFO metric and is using adjusted EBITDA. It was $176.2 million in Q3 2024, down 15% from $208.4 million a year earlier.
However, it is currently in discussions with FEMA (Federal Emergency Management Agency) to receive $659 million for the early termination of its FEMA contracts. That would boost its adjusted EBITDA to between $1.4 billion and $1.5 billion in 2024.
As Edens said in the conference call, a positive resolution of the FEMA situation is expected sometime in the next 3-4 months. On that basis, its financial situation would be significantly stronger, because it would use the funds to reduce its debt.
As of June 30, its net debt was $8.13 billion, about 3.4x its market cap, and 5.6 the $1.45 billion midpoint of its projected adjusted 2024 EBITDA, including the FEMA adjustment.
On the bright side, its Q3 2024 press release suggested it was in the advanced stages of moving about $2.7 billion in near-term maturities out to 2029. It also is extending its approximately $900 million revolving credit facility for a few more years.
In addition, it completed a $400 million equity raise on Oct. 1, selling 46.4 million shares at $8.63. Wes Edens bought 5.8 million (12.5%) of the shares in the offering. He is the largest shareholder with 21.2% of the shares outstanding. At their all-time high of $65.90 in January 2021, Eden’s shares would be worth $3.5 billion.
Edens has 3.5 billion reasons to get this situation turned around.
This Is Not a Stock I Would Buy
In August, I highlighted three stocks over $10, hitting 52-week lows that I thought would appeal to aggressive investors. New Fortress was one of those stocks. It’s down 29% in the three months since.
“New Fortress went public at $14 in January 2019. It is down 66% year to date and trading below its IPO price. In July, it started production at its FLNG 1 floating LNG facility, expected to generate $500 million annually in free cash flow,” I wrote in August.
While it’s too early to predict the ultimate impact of its FLNG 1 unit, it is producing LNG (liquid natural gas), and its FLNG 2 unit is close to operational, which should positively influence its results in 2025.
Conceptually, I love the business, however, I’m not an aggressive investor who’s okay with significant uncertainty and high levels of debt. It’s not my cup of tea, but a risk-tolerant investor should consider a lower-risk option play.
I like the Dec. 19/2025 $32 call with an ask price of $0.60. That’s 6.6% of its current share price of $9.11 and just 1.9% of its strike price. More importantly, you can double your money if the share price appreciates by $4.02 (44%) and you sell the option before its expiry in 402 days.
The ITM (in the money) probability is low at 7.39%. However, it’s had at least three 50%+ moves higher since March 2020, all of them in less than a year from bottom to top, which means your odds of at least getting your small option investment back are pretty good.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
