In a report released today, Jason Gabelman from TD Cowen downgraded NextDecade to a Hold, with a price target of $8.00.
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Jason Gabelman has given his Hold rating due to a combination of factors impacting NextDecade’s financial outlook. The company’s recent financial disclosures, particularly regarding the financing structure for the Rio Grande LNG project, were not as favorable as initially anticipated. The shift from a 75/25 to a 60/40 debt-to-equity financing ratio for Train 4 and 5 means that more equity financing will be required than previously modeled, affecting the overall valuation of the company.
Moreover, the valuation assumptions for NextDecade are based on a higher marketing margin than what Gabelman anticipates, given the expected oversupply in the global gas market. The company’s guidance suggests a $14 per share value, but this is contingent on a $5 per mcf marketing margin, which is higher than the $3 per mcf margin Gabelman expects as global gas prices are predicted to decline. This discrepancy in pricing assumptions results in a significant reduction in the projected cash flows and ultimately leads to a lower price target of $8 per share, justifying the Hold rating.
In another report released on September 12, Morgan Stanley also downgraded the stock to a Hold with a $10.00 price target.