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CQP Ranks 10th in Terms of Total Returns among MLPs

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Total returns

Cheniere Energy Partners (CQP), the MLP subsidiary of Cheniere Energy (LNG), is in tenth place among MLPs in terms of three-year total returns. CQP, which is the first company to export LNG (liquefied natural gas) cargo from the Lower 48 states, has returned 11.1% over the past three years. 

CQP’s three-year returns have been driven mostly by its distribution yield, and its shares have lost ~8.0% over the past three years.

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Distribution growth and guidance

Cheniere Energy Partners declared a flat distribution of $0.425 per unit for 2Q17. Based on this distribution, CQP is trading at an attractive distribution yield of 5.9%. 

The partnership could be less likely grow its distribution in the coming quarters considering its high leverage and significant capital spending targets.

Valuation

Cheniere Energy Partners (CQP) was trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 14.7x on October 13, 2017. This multiple is below the historical five-year average of 93.4x. 

CQP’s current distribution yield is slightly lower than the five-year average of 6.0%. CQP’s current valuation could reflect the uncertainty in the global LNG markets and high leverage. 

Cheniere Energy Partners’s current valuation could indicate a buying opportunity. The factors affecting this assessment include its timely completion of LNG trains, as well as the fixed stream of cash flow from long-term take-or-pay contracts amid the challenging energy price environment.

Analysts’ recommendations

Of the analysts surveyed by Reuters, 57.1% rated Cheniere Energy Partners (CQP) as a “hold,” and the remaining 42.9% rated it as a “buy.” BMO Capital last initiated coverage on CQP with an “outperform” rating, which is equivalent to a “buy” rating.

Overall, the partnership has seen five rating updates in 2017—two downgrades and three new coverages. CQP is currently trading below the low range ($31.00) of analysts’ target prices. CQP’s average target price of $33.75 implies an 18% upside potential from the current price levels.

For ongoing coverage on midstream companies, please check out Market Realist’s Master Limited Partnerships page.

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