Don't Sell Cheniere Energy at Its All-Time High, Just Wait for It

NEW YORK (TheStreet) -- Cheniere Energy (LNG) is on fire. In the last 24 hours, the company has announced two major contracts for its planned Corpus Christi liquefied natural gas, or LNG, export terminal. And more deals could be on their way.

Yesterday, Cheniere said that it signed a 20-year agreement with Australia's Woodside Petroleum (WOPEY) to supply natural gas. Today, Cheniere said that it entered into another 20-year sale and purchase agreement with Indonesia's state-owned Pertamina to supply 760,000 tons per year of LNG.

So far, Cheniere has entered into agreements that cover more than 50% capacity of its second terminal at Corpus Christi. In a statement, Cheniere's CEO Charif Souki said that the company is eyeing additional deals in the coming months which will allow it to make "a final investment decision and begin construction by early 2015."

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Cheniere announced four deals for Corpus Christi in less than five weeks which has renewed the prospects of its second major LNG export terminal. As a result, the company's shares have risen by 66.4% year to date, currently hovering at $72, close to its all-time high levels.

The company's shares could continue going higher as it gears up to open its flagship Sabine Pass facility, the first of its kind of LNG export terminal in the U.S, in 2015. Additional deals and a final investment decision for Corpus Christi can act as a catalyst for an upside in the near term.

The company's latest deal with Pertamina is in addition to the 760,000 tons per annum agreement which Cheniere already has in place with the Jakarta-based company.

Meanwhile, Woodside has said that it will buy 850,000 tons of LNG per annum once the second train, or liquefaction plant, at Cheniere's Corpus Christi project becomes operational. The deliveries from the second train are expected to begin in 2019.

Cheniere owns the Sabine Pass LNG receiving terminal. Through its subsidiary Cheniere Energy Partners (CQP), the company is developing two LNG export terminals at Sabine Pass in Louisiana and Corpus Christi in Texas to tap into the growing demand of LNG from Asia.

The company has planned to develop up to six LNG trains at Sabine Pass with combined capacity of 27 million tons per annum and three LNG trains at Corpus Christi with a total capacity of 13.5 million tons per annum.

The company has already started construction work at the first four trains at Sabine Pass. For Corpus Christi, Cheniere is signing contracts as it waits for the regulatory approval.

Ideally, Cheniere expects the first two trains at Sabine Pass to begin operations next year, which will be followed by the start up of train-3 and train-4 in 2016. The final two trains at Sabine Pass, train-5 and train-6, as well as train-1 at Corpus Christi, will start working from as early as 2018.

Since Cheniere's core projects are still under development, the company has not shown its true potential. Over the last year, the company has earned less than $70 million in quarterly revenues and has consistently reported operating losses. This, however, can change next year when it begins commercial operations at Sabine Pass.

The company has been looking to secure financing for Corpus Christi and for this, it needs buyers, like Woodside, who are willing to sign long-term supply contracts.

Earlier in June, Cheniere signed a 20-year deal with Spain's Gas Natural Fenosa to supply1.5 million tons of gas per year from the train-2 at Corpus Christi. Cheniere's deal with Gas Natural Fenosa is reportedly valued at $13 billion.

The Fenosa agreement was announced just a couple of days after the Cheniere signed a $5.6 billion, 20-year deal with Spanish power company Iberdrola (IBDRY) for the supply of 400,000 and 800,000 tons per year of LNG from train-1 and train-2 respectively from Corpus Christi.

Several other companies, such as Exxon Mobil (XOM), Kinder Morgan (KMIKinder Morgan Energy Partners  (KMP) and Dominion Resources (D), are also planning to construct LNG export terminals. However, it will be several years before any of their proposed projects can begin commercial operations. 

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates CHENIERE ENERGY INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate CHENIERE ENERGY INC (LNG) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LNG's revenue growth has slightly outpaced the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 2.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 144.97% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • CHENIERE ENERGY INC has improved earnings per share by 18.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CHENIERE ENERGY INC reported poor results of -$2.32 versus -$1.82 in the prior year. This year, the market expects an improvement in earnings (-$1.22 versus -$2.32).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CHENIERE ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to -$18.22 million or 37.82% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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