An Undervalued Play on LNG’s Bright Future

Energy Investing

I have been a fan of one particular LNG company for several years. It is on a tremendous growth trajectory. Unfortunately, the market has not shared my enthusiasm, and the stock price has been range-bound for over three years. A recent announcement shows how this company’s business operations and infrastructure development have put it in a class by itself.

Let me show you why I like this stock so much…

Hand holding beaker with moon in it against a gaseous background

Over the last four years, New Fortress Energy Inc. (NFE) has built a liquefied natural gas (LNG) infrastructure network that goes from natural gas liquefication to transport to regasification, and to power generation. A recent announcement shows the integration level of the NFE infrastructure and how the company generates revenues at multiple levels.

On February 29, NFE announced it had put its Barcarena LNG terminal located in Pará, Brazil, into service. The LNG terminal will offload LNG to be regassifed at the Energos Celsius Floating Storage Regasification Unit (FSRU), which is owned and operated by NFE. Here is an excerpt from the press release:

NFE’s Barcarena LNG terminal is strategically located at the mouth of the Amazon River in Pará, Brazil and serves as the sole natural gas supply source in the state of Pará and the North region of Brazil. The facility consists of an offshore terminal and FSRU that will supply LNG to several industrial customers, including a 15-year contract with Norsk Hydro’s Alunorte refinery, the largest alumina refinery in the world. The terminal will not only support industrial development but also reduce emissions and pollution in the environmentally sensitive Amazon region by providing a cleaner, affordable and reliable alternative to oil-based fuels.

Also, from the press release:

The Barcarena terminal will also supply natural gas to NFE’s 630 MW power plant, which is currently under construction adjacent to the Barcarena terminal. The power plant remains on track to achieve COD in the third quarter of 2025 and is approximately 50% complete. Additionally, the company intends to utilize its existing infrastructure in place in Barcarena to strategically expand its power complex by 1.6 GW under the previously announced New Power Project PPA, with an expected COD no later than July 2026.

NFE has several similar projects in Brazil and Puerto Rico.

The company’s foray into liquification with its FastLNG project off the coast of Mexico is in the final stages of commissioning. The FastLNG system is modular and can be rapidly expanded to meet demand.

Over the last four to five years, NFE has built out its LNG infrastructure network. Now, the revenues will start to flow, and with lower capital expenditures, a larger portion of revenue will fall to the free cash flow bottom line.

NFE uses funds from operations as a measure of free cash flow. This metric doubled in 2022 and 2023. For 2024, the company forecasts a near double cash flow again to $1.3 billion or over $6 per share.

NFE currently trades for about $34, or less than six times 2024 free cash flow. At ten times cash flow, this would be a $60 stock.