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On Tuesday, Citi analyst Ryan Levine upgraded NET Power Inc. (NYSE:NPWR) stock rating from Neutral to Buy, despite reducing the price target to $6.00 from $14.00. The upgrade comes as the stock trades at $4.75, down 55% year-to-date and significantly below its 52-week high of $14.28. Levine’s decision to upgrade the stock to Buy with a high-risk designation stems from several factors, including what he sees as downside protection at $2.45 per share, or its cash trading value, not accounting for potential business opportunities. According to InvestingPro analysis, NET Power currently appears undervalued based on its Fair Value estimate.
Levine points to the company’s strategic partners, which include CEG, BKH, Oxy, and sponsors who may consider a follow-on investment to support the company’s mission. He also notes that NET Power has approximately three years of liquidity, giving it time to raise additional capital. This assessment aligns with InvestingPro data showing the company holds more cash than debt and maintains a strong current ratio of 28.65, indicating robust short-term financial health.
The analyst suggests that the passage of time might help resolve the company’s cost issues. NET Power is currently working to reduce capital expenditure for its projects, which may prove to be successful in the long run. Additionally, the power plant supply chain shortage, which has been a challenge for the industry, is expected to improve over time.
Levine’s revised price target of $6.00 is based on a discounted cash flow (DCF) calculation. This calculation assumes a slowdown in development, with Project Permian expected to come online by 2029 and the first Generation 2 commercial project by 2030. The price target also takes into account a potential $1.6 billion capital expenditure per Generation 2 plant, which is slightly lower than the cost for Project Permian, and the possibility of share dilution from an anticipated $750 million in new equity. For deeper insights into NET Power’s development timeline and financial projections, access the comprehensive Pro Research Report available exclusively on InvestingPro, which provides detailed analysis of the company’s growth prospects and valuation metrics.
In other recent news, NET Power Inc. reported a wider-than-expected fourth-quarter loss, with an adjusted loss of $0.67 per share, missing analyst estimates of a $0.12 per share loss. This announcement coincided with delays in their first utility-scale project, Project Permian, which now faces increased cost estimates ranging from $1.7 billion to $2.0 billion. The project, initially expected to be operational between the second half of 2027 and the first half of 2028, is now anticipated to come online no earlier than 2029. Despite these setbacks, Texas Capital Securities maintained a Buy rating on NET Power, keeping a price target of $24.00, highlighting the company’s mixed outcomes in their latest earnings release. The company completed the Front End Engineering Design (FEED) study for Project Permian, confirming the project’s design integrity. To address the cost challenges, NET Power has initiated a feasibility study for a modular multi-unit plant design and is exploring coastal-based locations for future deployments. The company ended 2024 with $533 million in cash and investments, down from $580 million the previous quarter, indicating a strong liquidity position to advance their technology. CEO Danny Rice emphasized the potential for cost reductions due to the inflationary environment and the first-of-a-kind nature of the facility.
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