What Cheniere Energy’s Valuation Indicates before 2Q17 Results



Cheniere Energy’s valuation

So far in this series, we’ve talked about Cheniere Energy’s (LNG) earnings estimates, recent financial position, and market performance. In this part, we’ll perform a valuation analysis for the company based on its historical and forward multiples.

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Cheniere Energy’s EV-to-sales

Cheniere Energy was trading at an EV (enterprise value)-to-sales multiple of 14.9x as of August 3, 2017. At the same time, Cheniere Energy’s forward EV-to-sales multiple, which is based on the next 12-month sales estimate, was 8.3x. The lower forward EV-to-sales multiple might reflect revenue growth in the coming quarters, driven by the commencement of Train 4 at the SPL (Sabine Pass Liquefaction) facility. Its forward EV-to-sales multiple is higher than the peer median multiple of 2.8x.

Cheniere Energy’s EV-to-EBITDA

Cheniere Energy’s forward EV-to-EBITDA multiple was 18.1x as of August 3, 2017. That’s higher than the peer median of 12.9x. However, it’s lower than the historical five-year average of 149.3x.

Cheniere Energy’s high valuation compared to its peers might not be justified, considering its low operating cash flow compared to its huge outstanding debt. That results in high leverage, less business diversification, uncertainties in the Global LNG (liquefied natural gas) market, and increased buyer power due to the LNG supply glut. At the same time, its high valuation might reflect its fixed stream of cash flow with 87.0% of total capacity contracted under long-term take or pay agreements, first mover advantage, and current government bullishness on LNG exports.

The company expects to generate a run-rate EBITDA (earnings before interest, tax, depreciation, and amortization) of $3.8 billion–$4.1 billion following the completion of all seven trains in 2019. Based on the mid-point of this guidance, the company is currently trading at an EV-to-EBITDA multiple of 9.2x. Similarly, based on a run-rate distributable cash flow guidance of $1.5 billion–$1.7 billion, the company is trading at a price-to-distributable cash flow of 6.7x.

In the next part, we’ll analyze Cheniere Energy’s technical indicators.


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