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Archaea Energy: Does This Renewable Energy Stock Deserve a Place in Your Portfolio?

Renewable natural gas (RNG) and electricity producer Archaea Energy’s (LFG) shares dropped significantly after the company announced an underwritten public offering this month. Also, considering its bleak bottom line, is the stock worth betting on? Keep reading.

Archaea Energy Inc. (LFG) is a renewable natural gas (RNG) and renewable electricity producer in the United States. The company owns and operates a diversified portfolio of landfill gas recovery and processing projects, including projects that can produce considerable electric capacity and pipeline quality RNG. The company’s portfolio contains operational RNG and landfill gas to electric projects, operating experience, and a deep inventory of economic, low-risk greenfield RNG development projects.

The company's shares had dropped significantly after it announced an underwritten public offering of its Class A common stock on March 23. LFG announced the pricing of the previously announced underwritten public offering of 12,993,603 shares of its Class A common stock by an existing stockholder of the company, Aria Renewable Energy Systems LLC, at $17.75 per share. The offering was expected to close on March 25. However, the company is not expected to receive any proceeds from the offering.

LFG has gained 19.4% year-to-date, 16.8% over the past month, and 2.1% over the past five days to close yesterday’s trading session at $21.83.

Here is what could shape LFG’s performance in the near term.

Bleak Bottom Line

For the fiscal year ended December 31, LFG’s total revenues and other income increased 1,082.4% year-over-year to $77.13 million. However, the total cost of sales also rose 1,178.6% from the prior year to $62.51 million, while operating loss came in at $23.56 million, up 760.8% year-over-year. Net loss stood at $30.92 million, up 1,282.9% from the prior year.

Recent Partnership

On January 27, LFG announced that it would expand its commercial partnership with Fortis, Inc. (FTS) subsidiary FortisBC Energy Inc. by entering into a long-term commercial agreement. The agreement is expected to begin in 2022 after regulatory approvals. However, the full annual quantity is not expected to begin before 2025.

POWR Ratings Reflect Bleak Prospects

LFG’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

LFG has a D grade for Growth, which is justified by its bleak financials.

In the 62-stock Utilities – Domestic industry, LFG is ranked #61. The industry is rated F.

Click here to see the POWR Ratings for LFG (Value, Momentum, Stability, Sentiment, and Quality).

View all the top stocks in the Utilities – Domestic industry here.

Bottom Line

The company is expected to benefit from its recent partnerships in the long term. However, its bleak bottom line is concerning. Therefore, we think it might be best to avoid the stock at the moment.

How Does Archaea Energy Inc. (LFG) Stack Up Against its Peers?

While LFG has an overall POWR Rating of F, one might consider looking at its industry peer, Brookfield Infrastructure Corporation (BIPC), which has an overall B (Buy) rating.

LFG shares were trading at $21.85 per share on Thursday afternoon, up $0.02 (+0.09%). Year-to-date, LFG has gained 19.53%, versus a -4.07% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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