Cheniere Energy Long
Cheniere Energy, Inc. is a liquefied natural gas company headquartered in Houston, Texas. In February 2016 it became the first US company to export liquefied natural gas. As of 2018, it is a Fortune 500 company. As we saw yesterday with Chesapeake Energy, natural gas companies are still having never before seen revenues and I believe the same to be true today. However, there is a problem that this company has which is creating doubts in the back of my mind. They have a bad history of missing estimates. For example last quarter, the expected EPS was 1.02 but they only reported 0.25. For this quarter, the estimates are an EPS of 1.75 meaning they will have to increase their EPS by 700% within 3 months which I find almost impossible. Another illogical thing I found with this company is the fact that two quarters ago, they missed the EPS estimate just as bad as last quarter but had their stock go up 8% on opening. We don’t know the reason why their stock went up so high or why they are expecting a 700% decrease as we like to type the first part of our reports purely based on our guts and speculations, however, looking back at similar companies that we had invested into in the past with these types of illogical movements, it’s just a coin flip on predicting if they will go up or down tomorrow. Logically speaking, I’m almost sure about the fact that they will miss the EPS for tomorrow as this has also been the case for the last two quarters. But the question remains, how will the “investors” react? I believe as long as the outlook doesn’t change and the company comes out with promising results, they will end up going up. Even if they miss the EPS estimates in the worst possible way, I’m still expecting at least a 100% increase on their EPS compared to last quarter. In addition to that also looking at how well their competitors have been doing, it has led me to want to long this company
Analyst’s comments:
Cheniere Energy is one the largest US publicly-traded companies with complete exposure to LNG production. However, the company isn't vertically integrated, but has long-term contracts to supply third-party dry gas. The company brought its ninth liquefaction train (the third train of the Corpus Christi growth project) to full capacity in 1Q 2022, which helped to boost LNG production capacity from 40 mln tons a year to 45 mln tons a year.
Cheniere Energy will become a key beneficiary of the urgent EU program to replace Russian gas with LNG, which we are already seeing. More than 80% of its physical LNG supplies go to EU countries. And the potential for expanding the export capacity allows the company to conclude long-term contracts at current high prices.
We believe that it's still too early to buy the company's stock due to the market sentiment amid the high amount of gas in EU gas storage facilities and the restart of the Freeport LNG plant, which are putting pressure on gas prices, and consequently on LNG shares.
Cheniere Energy is one of the largest LNG producers. The company makes up 11% of the global LNG market, and more than 50% of US LNG production. It's important to note that Cheniere Energy is not vertically integrated. Cheniere Energy doesn't extract gas from the ground, but it has long-term contracts for its supply.
LNG consumption leaders are the European Union, Japan and China (power-hungry regions). As the situation around Nord Streams 1 and 2 is escalating, while business activity in Asian countries, particularly in China, is slowing down, European countries could make up more than 30% of the global import market.
The ongoing energy crisis coupled with some of the slowest introduction of new capacity in 2023 will mean LNG capacity utilization will remain high across the globe. For example, 7 export markets out of 21 reached the capacity utilization of more than 90% in 2021, according to IGU, due to high demand for gas and the desire of Asian partners to conclude long-term supply contracts.
More than 80% of LNG shipments go to EU countries, according to a recent report, and starting from 2Q 2022, the company began to conclude long-term contracts to supply LNG to MENA region countries (the Middle East and North Africa).
The company derives about 99% of its revenue from LNG sales, and the rest comes from the regasification services (for US LNG imports) and other revenue.
Furthermore, more than 60% of revenue in the LNG sales segment comes from long-term contracts. The company prefers to conclude long-term supply deals, however it reserves some volumes for short-term sales, which, given the high gas prices, allows it to earn an excess revenue.
What's the outlook for the company's volumes? Cheniere Energy is a unique LNG company that not only has gained a significant market share, but also has plans for a many-fold increase of its supplies. Its capacity is expected to expand to 90 mln tons a year after 2030.
Cheniere Energy is one the few companies in the industry whose capacity utilization averages 90%. We expect that capacity utilization will average about 100% over the forecast period to meet EU demand for LNG.
Report time: Tomorrow before market open
Estimate: +6%
Market cap: 28,765,910,210
P/E ratio: 33.78