2023 looks set to be another good year for the U.S. energy sector amid steadily increasing demand for oil and gas from Asian economies and constrained supplies due to turbulent geopolitics and OPEC+ production cuts.
However, New Fortress Energy Inc. (NFE), HighPeak Energy, Inc. (HPK), and Lightbridge Corporation (LTBR) don’t seem fundamentally strong enough to cope with softening demand of conventional energy sources over the medium to long term, led simultaneously by macroeconomic headwinds and increasing adoption of renewable energy sources.
Before delving deeper into the fundamentals of each of these stocks, let's take a look at what's happening in the energy sector.
The redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”
Moreover, Saudi Arabia-led OPEC+ surprise announcement of a cut of more than a million barrels of output a day, in addition to a reduction of 2 million barrels a day agreed upon in October 2022, has taken about 3% of the world’s petroleum production off the market in seven months.
In addition to growing Asian economies absorbing the bulk of the remaining supplies, Europe’s increasing reliance on American shipments and Russia’s announcement of a voluntary production cut of 500,000 barrels a day in response to Western sanctions increase the likelihood of price increases.
However, with home prices in March posting the biggest annual decline in 11 years, the economic slowdown that has been looming on the horizon for a while now seems more imminent than ever.
Moreover, with energy think tank Ember’s Global Electricity Review forecasting 2023 to be “the beginning of the end of the fossil age,” a softening or even a contraction in demand for conventional energy sources can’t be counted out.
Given this backdrop, let’s take a closer look at the featured stocks.
New Fortress Energy Inc. (NFE)
As an energy infrastructure company, NFE owns and operates natural gas and liquefied natural gas (LNG) infrastructure and an integrated fleet of ships and logistics assets to rapidly deliver energy solutions and development services to global markets. The company operates through two segments: Terminals and Infrastructure; and Ships.
For the fourth quarter of the fiscal year (ended December 31, 2022), NFE’s revenues declined by 25.3% sequentially to $546.4 million. During the same period, the company’s adjusted EBITDA came in at $239.3 million, down 17.7% sequentially. As a result, its adjusted net income came in at $182.7 million, or $0.87 per share.
Ahead of its May 4 earnings release, although NFE’s revenue for the fiscal year 2023 first quarter ended March 31 is expected to increase by 45.5% year-over-year to $734.83 million, its EPS is expected to decline by 25.4% year-over-year to $0.85.
Despite gaining 9.4% over the past month, the stock has lost 38.4% over the past six months to close the last trading session at $30.35, below its 50-day and 200-day moving averages of $32.53 and $43.75, respectively. NFE has a beta of 1.59.
NFE’s forward EV/Sales multiple of 3.11 is 69.9% above the industry average of 1.83. Likewise, its forward Price/Sales and Price/Book multiples of 1.82 and 3.30 compare unfavorably to the respective industry averages of 1.28 and 1.48. Such stretched valuations increase the downside risk for the stock.
NFE has an overall POWR Rating of D, which equates to a Sell rating. It also has D grades for Growth, Value, and Stability. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NFE is ranked #41 of 43 stocks in the Energy - Services industry. Click here for additional ratings for Momentum, Sentiment, and Quality of NFE.
HighPeak Energy, Inc. (HPK)
As an independent crude oil and natural gas company, HPK is engaged in the acquisition, development, and production of crude oil, natural gas liquid (NGL), and natural gas reserves.
For the fourth quarter of the fiscal year that ended December 31, 2022, HPK’s total operating revenues and EBITDAX increased by 26.4% and 30.1% sequentially to $257.92 million and $220.87 million. However, the company’s net income showed a sequential decline of more than 37%, to come in at $67.90 million, or $0.53 per share.
HPK has missed its consensus EPS estimates in three of the trailing four quarters.
The stock has gained 5% over the past six months to close the last trading session at $22.92. However, it is still trading below its 50-day and 200-day moving averages of $24.73 and $23.81, respectively.
HPK’s forward EV/Sales multiple of 2.64 is 44.5% above the industry average of 1.83. Similarly, its forward Price/Sales multiple of 2.10 is 64.3% above the industry average of 2.10.
In addition to an overall POWR Rating of D, HPK has an F grade for Value in our proprietary rating system.
HPK is ranked #38 of 43 stocks in the Energy – Services industry.
Click here for additional POWR Ratings for Growth, Stability, Sentiment, Momentum, and Quality of HPK.
Lightbridge Corporation (LTBR)
LTBR is involved in the development of advanced nuclear fuel technology. Lightbridge Fuel is a nuclear fuel technology that is currently in development to improve the economics and safety of existing and new nuclear power plants, large and small, enhance proliferation resistance of spent nuclear fuel, and with a meaningful impact on addressing climate change and air pollution.
On February 7, LTBR announced that a recently published peer-reviewed technical paper on the disposition of weapons-grade plutonium revealed that the fuel rod designed by the company significantly outperforms traditional mixed-oxide (MOX) fuel in consuming plutonium in a computer simulation, making the former well-suited for consuming excess weapons-grade plutonium.
However, given the ongoing geopolitical turbulence and the increased willingness of most nation-states to invest in their own nuclear weapons program in the interest of their security and sovereignty, it could be a while before this finding conveys additional value to and finds traction among LTBR’s potential clients.
Given the fact that LTBR is yet to register any revenue, a 42.5% year-over-year decline in total other operating income to $372.61 thousand resulted in the company’s operating loss for the fiscal year that ended December 31, 2022, to come in at $7.79 million.
During the same period, LTBR’s net loss attributable to common shareholders came in at $7.50 million, or $0.69 per share. The company’s total current liabilities stood at $350.33 thousand as of December 31, 2022, compared to $171.52 thousand as of December 31, 2021.
The stock has lost 14.2% of its value over the past six months to close its last trading session at $3.93, below its 50-day and 200-day moving averages of $4.07 and $4.80, respectively. The stock has a beta of 2.76.
LTBR has an F grade for Value and a D for Quality. It is ranked #40 in the same industry.
Click here to access additional POWR Ratings for Growth, Stability, Sentiment, and Momentum of LTBR.
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NFE shares were trading at $30.20 per share on Friday afternoon, down $0.15 (-0.49%). Year-to-date, NFE has declined -23.12%, versus a 8.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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