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Shares of Navigator Holdings Ltd. (NYSE: NVGS), a seaborne transporter of gas and liquid petrochemicals, are up 24.1% at 12:50 p.m. EDT on July 13. This follows the announcement late on July 12 that the company was partnering with energy giant Enterprise Products Partners (NYSE: EPD), which specializes in midstream services and energy infrastructure, on the development of an ethylene export terminal at Enterprise's Morgan's Point facility on the Houston Ship Channel.
The terminal, which will be developed through a 50-50 joint venture, would service the ethylene storage and pipeline system with 600 million pounds of capacity that Enterprise is currently building at the Morgan's Point facility. This facility will be connected to Enterprise's vast ethylene pipeline system, which is connected to numerous major ethylene producers and consumers on the U.S. Gulf Coast.
In scale, this is a relatively small deal for Enterprise, since a significant amount of the ethylene it will store at the facility can be sold to domestic consumers and shipped via its existing pipeline system. For Navigator, the implications are much bigger, considering that 14 of its vessels -- nearly 40% of its fleet -- are capable of shipping ethylene.
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Based solely on the vessel count, the numbers make it appear that there's a ton of upside for Navigator in this partnership, but it's really a bit early to say for sure. To start, today's agreement is only a letter of intent, as the two parties still must negotiate the terms of the partnership. This includes the financial contributions both parties will make, their legal obligations, and the timeline for completion and implementation of the export terminal. Realistically, it could take years before the first tanker of ethylene is even shipped out of this facility.
In other words, there's a lot of investor speculation driving today's big price jump. But that's been the norm for Navigator Holdings' stock this year, which was up as much as 50% this spring before selling off over the past few months. Before today's big jump, shares were actually down 10% since January.
Bottom line: This big jump is heavily speculative, and that's been the case for much of the momentum that has driven Navigator Holdings' stock up and down (and now back up) this year. This trend is likely to continue, so keep that in mind if you plan to invest in the company.
Also keep in mind that there's a lot more about this deal with Enterprise Products we don't know. It probably will work out very well for Navigator, but we won't know until a final agreement is hammered out. There's also a (probably slim, but not nonexistent) chance that it falls apart.
For that reason, this isn't news I'd personally invest on. Better to wait for the parties to actually enter into the venture, with timelines for completion of the project, before speculating on what it might be worth.
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