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How Cheniere Energy Stock Is Placed for the Future

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Apr. 4 2019, Published 12:26 p.m. ET

A smooth ride after rough seas?

Developments in US-China trade negotiations have continued to swing the markets lately, and Cheniere Energy (LNG) stock has been no exception. 

Issues on the trade front with China have become a crucial obstacle for Cheniere Energy’s exports.

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According to Reuters, China’s LNG (liquefied natural gas) imports are expected to grow to 80 million tons by 2025 from 54 million tons in 2018. Chinese LNG demand will increase due to its aim of achieving a cleaner energy mix and more stringent environmental policies. China’s second-largest energy company, Sinopec, is ready to sign a 20-year LNG supply deal with Cheniere Energy once the trade disputes ease off, Reuters has reported.

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Solid earnings

Cheniere Energy has seen significant growth recently due to healthy demand for liquified natural gas. In 2018, Cheniere Energy’s adjusted EBITDA rose 45% YoY (year-over-year). For 2019, the company’s management has provided adjusted EBITDA guidance of ~$3.1 billion, which indicates a potential YoY rise of 20%. Shares of Cheniere Energy, the largest LNG exporter in the country, have soared 13% so far this year, marginally underperforming the S&P 500 Index.

Valuation

Cheniere Energy stock has rallied ~25% in the past year. The stock is trading at a forward enterprise value-to-EBITDA multiple of 13x as per analysts’ estimated earnings for the next 12 months. The peer average forward valuation is ~12x, so the company’s stock looks expensive in comparison. However, its robust potential growth likely justifies its valuation.

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