After a bumper year in 2022, energy stocks have trailed the broader markets in the last 15 months due to lower oil prices and slowing GDP rates. One such TSX energy stock down 18% in the last year is Enerflex (TSX: EFX). Valued at $861 million by market cap, EFX stock is down 67% from all-time highs and trades at an attractive valuation today. Let’s see if you should go bottom fishing and scoop up shares of Enerflex right now.
An overview of Enerflex
Enerflex provides energy infrastructure and energy transition solutions. It delivers natural gas processing, compression, power generation, refrigeration, cryogenic, and produced water solutions. A Canada-based company, Enerflex operates in more than 85 locations.
In 2023, Enerflex spent US$110 million in capital expenditures, which was below its forecast of US$130 million. The company stated it prioritized debt reduction to lower financing costs amid interest rate hikes, allowing it to end the year with US$900 million in net debt, indicating debt repayments of US$120 million in the fourth quarter (Q4).
What does Enerflex expect in 2024?
Enerflex’s preliminary outlook for 2024 reflects strong demand across businesses and geographies. It is focused on generating free cash flow and improving overall financial flexibility while navigating an uncertain macro environment.
According to Enerflex, its operating results in 2024 will be underpinned by its highly contracted Energy Infrastructure business and After-Market Services segment, which is recurring in nature. The two businesses should account for 60% of gross margins and drive earnings growth in the next 12 months.
Moreover, Enerflex emphasized the Engineered Systems product line ended 2023 with a backlog of $1.5 billion and is positioned to benefit from rising natural gas production in core markets. Enerflex expects to convert the majority of its backlog into sales in the next 12 months.
The company continues to invest in capital expenditures, allocating around US$100 million in 2024. This includes maintenance expenditures of US$70 million as it aims to expand the energy infrastructure business this year.
In its recent press release, the company explained, “Long-term fundamentals for natural gas are robust, given its critical role in supporting global decarbonization efforts and future economic growth. Enerflex is poised for long-term growth as it continues to capitalize on the growing demand for low-carbon solutions through its vertically integrated natural gas, produced water and energy transition offerings.”
What is the target price for EFX stock?
Enerflex pays shareholders a quarterly dividend of $0.025 per share, indicating a yield of 1.2%. However, the company’s quarterly dividend payout was much higher at $0.06 per share in 2011 and $0.12 per share in 2012.
Enerflex reported an operating cash flow of $71 million, while capital expenditures stood at $26 million, indicating a free cash flow of $45 million. Comparatively, it paid dividends worth $3 million in Q3, indicating a payout ratio of less than 10%, providing Enerflex with enough room to lower its balance sheet and target strategic acquisitions.
Analysts expect Enerflex to end 2024 with adjusted earnings of $0.65 per share, indicating a forward earnings multiple of 10.7 times, which is quite cheap. Analysts remain bullish and expect EFX stock to surge over 40% in the next 12 months.
