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Cheniere Energy in 2016: What's Driving the Bullish Sentiment?

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Part 9
Cheniere Energy in 2016: What's Driving the Bullish Sentiment? PART 9 OF 9

What Analysts Recommend for Cheniere Energy

Analyst ratings for Cheniere Energy

In this final part of our series, we’ll see what Wall Street analysts are recommending for Cheniere Energy (LNG). About 72.7% of analysts rate Cheniere Energy a “buy,” 18.2% rate it a “hold,” and the remaining 9.1% rate it a “sell.”

What Analysts Recommend for Cheniere Energy

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The median broker target price of $52 for Cheniere Energy implies a 46.7% price return in the next 12 months from its June 22, 2016, closing price of $35.40. The company’s subsidiaries, Cheniere Energy Partners (CQP) and Cheniere Energy Partners LP Holdings (CQH), have “buy” ratings from 63.6% and 75.0%, respectively, of analysts surveyed by Bloomberg.

Its peers Dominion Resources (D) and Kinder Morgan (KMI) have been given a “hold” rating by 52.2% and 47.6% of analysts, respectively.

Outlook for Cheniere Energy

Investors should consider the following positives and negatives before deciding to include Cheniere Energy as a long-term investment.

What are the positives?

  • first mover advantage
  • low cost advantage – According to an investor presentation, “U.S. liquefaction project costs are also significantly lower due to less project development needed,” and “breakeven LNG price for Cheniere LNG export facilities is one of the lowest compared to other proposed LNG projects.” However, with the increase in Henry Hub prices, liquefaction costs may increase.
  • 87% capacity for seven trains sold under long-term SPAs (sale and purchase agreements)

What are the negatives?

  • negative operating cash flows – Operating cash flows are expected to stay low for the next few years until most of liquefaction trains come online.
  • highly leveraged – The situation isn’t expected to improve in the next few years due to low internally generated cash flows.
  • decline in LNG (liquefied natural gas) demand from major Asian LNG markets such as Japan and South Korea
  • global LNG spot prices that could stay low in the coming years due to the supply glut – This impacts Cheniere Energy’s uncontracted LNG capacity.
  • decline in US LNG imports that are negatively impacting Cheniere Energy’s regasification business

Looking at the above positives and negatives, some investors might consider Cheniere Energy an attractive investment option with a very long-term investment horizon. For more on MLPs, you can follow our Master Limited Partnerships page.

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