What Does Cheniere Energy’s High Relative Valuation Indicate?
Cheniere Energy’s EV-to-sales
Cheniere Energy (LNG) was trading at an EV-to-sales (enterprise value-to-sales) multiple of 15.4x on June 6, 2017, quite low compared to its trailing-ten-quarter average.
At the same time, Cheniere Energy’s forward EV-to-sales multiple, which is based on its next 12 months’ worth of sales estimates, was 8.9x. This value reflects the revenue growth driven by the start of operations on Trains 3 and 4 at Sabine Pass Liquefaction.
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Cheniere Energy’s EV-to-EBITDA
Cheniere’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 19.5x is higher than its peers’ median of 12.4x. Cheniere’s high relative valuation could reflect its first-mover advantage, the foreseeable cash flows tied to its long-term contracts, and a rise in LNG (liquefied natural gas) demand from Asia and other emerging markets.
Recently, the United States inked an LNG trade deal with China to boost its LNG exports. Cheniere Energy, which has been pursuing LNG export opportunities with its Chinese counterparts, is expected to be the direct beneficiary of this deal. The trade deal could also benefit other players pursuing LNG projects such as Kinder Morgan (KMI) and Dominion Energy (D).
Moreover, Cheniere Energy is exploring other opportunities to expand, including mid-scale LNG projects, pipeline projects, and other downstream opportunities such as power generation and FSRUs (floating storage regasification unit).
In the next article, we’ll look at the analysts’ recent recommendations for Cheniere Energy.