Wall Street analysts are bullish on the future Venture Global , the second pure-play publicly traded liquified natural gas company in the U.S. Venture Global started trading on the New York Stock Exchange on Jan. 24 in one of the largest initial public offerings for an energy company in years. Venture’s stock has subsequently fallen 36% below its IPO price of $25 per share to $15.96 as of Friday’s close. But Goldman Sachs, JP Morgan, Bank of America, Deutsche Bank, RBC Capital Markets and Mizuho Securities have all initiated coverage of Venture with the equivalent of buy rating. Goldman has $29 price target, which would deliver about 82% upside from current levels, while JP Morgan has a $25 target, suggesting about 57% upside. The investment banks believe Venture’s unique construction and operating model will allow the company to build out LNG export facilities more quickly than competitors and deliver upside to the nameplate capacity of these facilities once they are online. Goldman Sachs, JP Morgan and Bank of America were the lead underwriters for the IPO. RBC Capital Markets, Mizuho and Deutsche Bank also served as underwriters. VG 1M mountain Venture Global shares over the past month. Venture’s Calcasieu Pass and Plaquemines facilities on Louisiana’s Gulf Coast have quickly turned the company into the second largest LNG producer in the U.S., behind Cheniere , with 30 million metric tons per year of capacity either under construction or in commissioning, according to JPMorgan. Venture has three other facilities under development though they have not yet reached final investment decisions. If all these facilities come online, Venture will have total potential capacity of 179 million metric tons per year if excess capacity and expansions at current sites are included, according to JPMorgan. The LNG industry has been plagued with execution problems with projects taking more than six years to reach completion in some cases. Venture, however, has a “lego block” development approach in which the company assembles prefabricated, standardized modules on site “leading to faster deployment and scalability versus traditional bespoke, stick-built designs,” according to JPMorgan. Faster construction timelines and the potential to run above the facilities’ nameplate capacities could provide “significant cash flow upside and high returns on capital,” Goldman Sachs analysts led by John Mackay and told clients in a Monday note. Venture’s nameplate capacity is underpinned by contracted volumes, but the company has potential to produce above this level and future sites are expected to have a significant portion of estimated capacity left uncontracted, according to JPMorgan. This would allow Venture to sell uncontracted volumes and plow the proceeds into future expansions, according to JPMorgan. The potential to sell uncontracted volumes would allow Venture to exploit the difference between low natural gas prices in U.S. and higher international prices, according to Goldman. Peers have not been able to advantage of this due to their contracts, according to the investment bank. Since U.S. LNG exports began in 2016, uncontracted LNG capacity would have realized higher cash margins on more than 60% of operation days, Goldman’s Mackay said. Key risks to the Venture include LNG spread pricing volatility, ongoing arbitration disputes with customers, the company’s high leverage, increased competition from competitors with greater financial capabilities and project execution, according JPMorgan. While individual LNG production trains have demonstrated excess capacity at Calcasieu Pass, Venture still needs to prove that it can sustain this, JPMorgan analysts led by Jeremy Tonet said. “We note VG pulling forward or pushing back expansion time lines on the first three facilities will materially impact our valuation,” Tonet’s team told clients. — CNBC’s Michael Bloom contributed to this report.
