On Tuesday, UBS adjusted OPAL Fuels Inc's (NASDAQ:OPAL) financial outlook, lowering the price target to $8.00 from the previous $11.00, while maintaining a Buy rating on the stock. The revision follows the company's fourth-quarter results and guidance for the year, which were largely in line with expectations.
However, UBS has revised its adjusted EBITDA projections for 2024 to 2026 to $96 million, $142 million, and $160 million, respectively. This adjustment is down from the earlier estimates of $109 million, $174 million, and $192 million, with the primary change reflecting the removal of Investment Tax Credit (ITC) proceeds due to an expected change in accounting treatment.
UBS notes that OPAL's valuation is currently challenged by low liquidity, with less than $150 million in estimated float and about $500,000 in daily average turnover. OPAL's management is reportedly taking steps to address this issue, including altering controlling shareholder voting rights to potentially allow the stock to be included in certain indices, and issuing shares under a $75 million at-the-market (ATM) offering facility.
The firm remains optimistic about OPAL's future, highlighting that adjusted EBITDA growth is expected to accelerate in 2024, bolstered by supportive policies and the commissioning of projects currently under construction. UBS also suggests that OPAL shares are trading near what they consider a lower-bound valuation, especially when compared to a recent renewable natural gas (RNG) peer acquisition.
This perspective underpins their decision to maintain a Buy rating on the stock despite the reduced price target.
InvestingPro Insights
As investors digest UBS's new financial outlook for OPAL Fuels Inc (NASDAQ:OPAL), InvestingPro data complements the analysis with additional insights into the company's performance and valuation. OPAL's market capitalization stands at $831.36 million, indicating a notable presence in its sector. The company's P/E ratio, a key indicator of market expectations about future earnings, is currently at 6.9, which is adjusted to 7.04 for the last twelve months as of Q4 2023. This relatively low P/E ratio may suggest that the stock is undervalued compared to earnings.
On the growth front, OPAL has demonstrated an 8.74% revenue growth over the last twelve months as of Q4 2023, with a more impressive quarterly revenue growth of 30.41% in Q4 2023. This suggests a strong upward trend in the company's revenue generation, aligning with UBS's optimism regarding the acceleration of adjusted EBITDA growth in 2024.
Turning to InvestingPro Tips, it's noted that OPAL operates with a moderate level of debt and has liquid assets that exceed short-term obligations, providing a level of financial stability. Additionally, the company is trading at a high EBITDA valuation multiple, which may reflect the market's confidence in its future profitability, a sentiment echoed by analysts who predict that OPAL will be profitable this year.
For those looking to delve deeper into OPAL's financials and future prospects, InvestingPro offers a comprehensive suite of tools and analytics. To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 5 more InvestingPro Tips available on the platform, investors can gain a more nuanced understanding of OPAL's market position and potential.
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