Renewable natural gas (RNG) producer Archaea Energy Inc. (LFG) in Canonsburg, Pa., develops, constructs, and operates RNG facilities to capture waste emissions and convert them into low-carbon fuel. Shares of LFG jumped as much as 9.2% in its first trading session on the New York Stock Exchange on September 16. The company listed on the Big Board via an SPAC merger with the blank-check company Rice Acquisition Corp in a $1.15 billion deal.

In November, LFG announced that its subsidiary, Archaea Holdings, had entered a long-term RNG purchase and sale agreement with a subsidiary of NW Natural Holdings (NWN), Northwest Natural Gas Company. The deal marked its first contract with a U.S-based utility. The deal will commence in early 2022, under which NW Natural will purchase the environmental attributes generated by Archaea related to up to one million MMBtu of RNG annually for 21 years.

However, LFG’s weak bottom line is a concern. The company incurred a $21.34 million net loss in its last reported quarter, up 3,445% from its year-ago value. Furthermore, its cash flow from operations was negative for the nine months ended September 30. Shares of LFG have slumped 8.1% in price over the past month and 5.1% over the past five days. The stock has declined 6.8% intraday to close yesterday’s trading session at $19.06. It is trading below its 50-day moving average.

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

Weak Bottom Line

LFG’s total revenues and other income increased 529.5% year-over-year to $11.99 million in its fiscal third quarter, ended September 30. However, its operating loss stood at $9.42 million, up 1,499.8% from the same period last year. Its net income attributable to common stock came in at $7.01 million, while its adjusted EBITDA was negative $521,000. The company’s EPS stood at negative $0.33. Also, its net cash used in operating activities increased 1,840.1% year-over-year to $54.71 million for the nine months ended September 30.

POWR Ratings Reflect This Bleak Prospects

LFG has an overall F rating, translating to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a D grade for Sentiment, which is consistent with analysts’ expectations of negative EPS for the current year.

LFG has a C grade for Growth. This is justified because the company’s top-line growth did not translate to bottom-line improvement in its last reported quarter.

Of the 57 stocks in the F-rated  Utilities - Domestic industry, LFG is ranked last.

Beyond what I have stated above, one  can also view LFG’s grades for Value, Quality, Momentum, and Stability here.

View the top-rated stocks in the Utilities - Domestic industry here.

Bottom Line

LFG’s recent agreement with Northwest Natural Gas Company is expected to benefit the company over an extended period. However, the deal is expected to begin in 2022, ramping up to the full annual quantity in 2025. Thus, it might take a while for the company to register significant gains from this venture. Analysts expect its EPS to remain negative in the current year. Thus, we think the stock is best avoided now.

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

While LFG has an overall POWR Rating of F, one might want to consider investing in the Utilities - Domestic stock with a B (Buy) rating: Brookfield Infrastructure Corp. (BIPC).

LFG shares were trading at $18.49 per share on Tuesday afternoon, down $0.57 (-2.99%). Year-to-date, LFG has gained 70.73%, versus a 24.55% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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