On Monday, Deutsche Bank (ETR:DBKGn) adjusted its stance on New Fortress Energy (NASDAQ:NFE), downgrading the stock from Buy to Hold and lowering the price target to $35 from the previously set $40. The revision follows New Fortress Energy's recent financial report and guidance update.
New Fortress Energy disclosed its adjusted EBITDA for the fourth quarter of 2023, amounting to $388 million, and revised its forecast for the full year 2024 adjusted EBITDA from $2.4 billion to $2.0 billion.
Excluding a one-time gain of $100 million from asset sales, the adjusted guidance effectively shifts from $2.3 billion to $2.0 billion. Deutsche Bank has subsequently revised its own FY24 adjusted EBITDA projection for New Fortress Energy from approximately $2.0 billion to around $1.6 billion.
The downgrade in rating and price target is primarily attributed to uncertainties surrounding the contract status of the company's power generation assets in Puerto Rico. Deutsche Bank's analysis suggests that New Fortress Energy's 2024 guidance is predicated on the assumption that current contracts will remain unchanged throughout the year, an assumption the bank does not share.
The bank's model anticipates the sale of 350 MW assets to the Government of Puerto Rico by the second quarter of 2024, which would result in a significant reduction in contracted margins.
Despite expecting a cash inflow of approximately $335 million from the asset sale to Puerto Rico's government, Deutsche Bank does not forecast any additional incoming cash until further announcements are made.
The bank's estimates also factor in potential growth in volumes shipped to Puerto Rico in the coming quarters, albeit at reduced margins. This cautious outlook has led to the revised investment rating and price target for New Fortress Energy's shares.
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