Key Takeaways
- LNG stock has climbed 42% in the past six months, outperforming the oil and energy sector and the S&P 500.
- Despite the positive trends, some issues for LNG suggest investors should think twice before buying shares now.
- Register now to see our 7 Best Stocks for the Next 30 Days report - free today!
Cheniere Energy LNG, a leading exporter of natural gas, has been on a steady rise. On Friday, the stock closed at $222.60, just below its new 52-week high of $225.44 earlier that day. Over the past six months, LNG shares have climbed nearly 42%, outperforming both the Oil/Energy sector and the broader S&P 500. This performance also surpasses other energy storage and transportation operators like MPLX LP MPLX and TC Energy Corporation TRP.
LNG, MPLX and TRP 6-Month Stock Performance
Image Source: Zacks Investment Research
With such strong performance, investors might wonder if it’s the right time to buy LNG stock, wait for a better price, or consider taking profits. Let’s take a closer look at the company’s key strengths and financial health.
5 Catalysts That Support Cheniere Energy Stock
Strong Contracted Cash Flow Stability: Cheniere’s solid long-term contract structure provides predictable cash flow and lowers market volatility risks. With 97% of Q3 2024 production tied to long-term agreements, Cheniere minimizes the impact of potential fluctuations in spot liquefied natural gas ('LNG') prices. These contracts also include variable pricing adjustments, protecting against cost increases and maintaining stability, reinforcing Cheniere’s secure revenue base.
Expansive Growth in Demand and Infrastructure: Global LNG demand is projected to remain tight until at least 2027, providing Cheniere with strong pricing power. The company's strategically positioned terminals, Sabine Pass and Corpus Christi, are critical assets that meet growing European and Asian demand. Moreover, Cheniere’s Corpus Christi Stage 3 project is 68% complete, on budget, and ahead of schedule, poised to enhance production and revenue generation as early as 2025.
Upward Earnings Revisions Signal Stronger Outlook: The Houston, TX-based energy player has lately been blessed with positive earnings estimate revisions. Looking at the current year, analysts have raised estimates by around 13% in the past 30 days. The 2024 Zacks Consensus Estimate is now $11.26 per share compared to $9.99 a month back.
Image Source: Zacks Investment Research
Shareholder Value Through Consistent Dividends and Buybacks: Cheniere is enhancing shareholder returns with robust buybacks and dividend increases. In the third quarter, the company repurchased $300 million of stock, bringing its buyback volume to $2 billion year to date. It also raised its dividend by 15% in October to $2.00 annually, targeting continued 10% annual growth in dividends. This strategy of disciplined capital allocation is set to reward investors.
Leadership in Environmental Stewardship: Cheniere has set a rigorous methane emissions target of 0.03% per ton of LNG produced by 2027, significantly enhancing its ESG profile. This commitment aligns with Cheniere's reputation for operational transparency and reliability, which strengthens its competitive edge, particularly as demand grows for cleaner energy solutions.
While Cheniere Energy has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored.
Issues Plaguing LNG Stock
High Debt Levels Limit Financial Flexibility: Exporting natural gas — by setting up large liquefication plants — is a highly capital-intensive undertaking, with each unit running up multi-billion-dollar bills. This has translated into a huge debt load for Cheniere Energy. Its long-term debt is around $22.6 billion, with only $3.1 billion in cash and cash equivalents. Importantly, the company's debt-to-capitalization as of the end of the third quarter was 71.3%, posing a major risk and restricting its financial freedom.
Exposure to LNG Pricing Volatility: Given Cheniere Energy's earnings volatility due to fluctuating natural gas prices and changing demand, the company's performance can be unpredictable and risky. Additionally, the LNG industry's susceptibility to geopolitical events, regulatory changes, and potential oversupply could further destabilize Cheniere's operations and profitability. Investors seeking stable returns should be cautious of these factors.
Geopolitical and Regulatory Risks: Operating within the global LNG market, Cheniere faces various geopolitical and regulatory risks, such as trade tensions and energy policy shifts. The ongoing war in Ukraine and potential policy changes in Asia and Europe add uncertainty to LNG demand dynamics.
Magnitude of Share Buybacks Raise Financial Concerns: Cheniere’s aggressive share repurchase strategy, funded partially by debt, adds immediate value to shareholders but raises questions about sustainability. With $2 billion allocated to buybacks in the first nine months of 2024 alone, further reliance on debt could strain the company’s financial flexibility.
Oversupply Concerns: The anticipated growth in global LNG supply, with several large facilities set to come online, is a risk to market oversupply. This could pressure prices downward in the near term, negatively affecting Cheniere's spot market sales and future contract renewals. Although long-term contracts provide some revenue stability, the influx of new capacity may dilute pricing power, potentially impacting the company's profitability and margins as new facilities come into operation.
Final Word: Hold Cheniere Energy Stock for Now
Considering the mixed factors at play, it would be wise to wait for a better opportunity before investing in Cheniere Energy. In the meantime, holding onto your shares could prove beneficial.
LNG carries a Zacks Rank #3 (Hold) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
