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

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Part 4
Cheniere Energy in 2016: What's Driving the Bullish Sentiment? PART 4 OF 9

A Look at Cheniere Energy’s Current Valuation

Cheniere Energy’s EV-to-sales

So far in this series, we’ve looked at Cheniere Energy’s (LNG) Market performance, leverage position, and cash flow measures. In this part, we’ll perform a valuation analysis of Cheniere Energy based on its historical and forward multiples.

A Look at Cheniere Energy’s Current Valuation

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Despite huge leverage and weak operating performance, Cheniere Energy currently trades at an EV- (enterprise value) to-sales multiple of 100.3x. Cheniere Energy’s high valuation indicates higher investor expectations for the company’s LNG (liquefied natural gas) export opportunity.

While players such as Kinder Morgan (KMI) have recently received LNG export approval from the FERC (Federal Energy Regulatory Commission), Cheniere Energy enjoys the unique first mover advantage. Dominion Resources (D) and Energy Transfer Equity (ETE) have received the approval. Dominion has started construction while the FID (Final Investment Decision) is pending on ETE’s Lake Charles LNG export project.

Cheniere Energy’s forward EV-to-sales multiple, which is based on the next 12-month sales estimate, is 22.2x. This reflects higher revenue in the coming quarters, driven by LNG exports from Train 1 and Train 2 of the Sabine Pass Liquefaction.

Cheniere Energy’s EV-to-EBITDA multiple

Cheniere’s EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortiation) multiple can’t be calculated due to the company’s negative EBITDA for the past several quarters. Cheniere Energy Partners (CQP), a Cheniere Energy midstream subsidiary, is currently trading at an EV-to-EBITDA multiple of 304.4x.

However, an EV-to-EBITDA ratio can be misleading in understanding the unit valuation of limited partner units. This is because the entire EBITDA in the EV-to-EBITDA ratio calculation may not be available to limited partners.

Cheniere Energy Partners has IDRs (incentive distribution rights) in its structure. IDRs mean that its general partner, Cheniere Energy, gets a higher share of incremental cash flows.

Next, let’s look at Cheniere Energy’s commodity price exposure and what it means to investors.


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