NEW YORK (TheStreet) -- Cheniere Energy (LNG) offers a way to invest in the U.S. liquefied natural-gas business, which is expected to expand in the coming years, but declining prices could hurt the company.
Since the beginning of the year, shares of the company have spiked by more than 66%. Let's examine the recent developments related to the company and its valuation to determine if it is still worth investing in.
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The company develops two terminals to produce and export liquefied natural gas: Sabine Pass and Corpus Christi.
The former is expected to start production by the end of next year in two of its six trains, and the latter is projected to commence by 2018-2019. All of Cheniere Energy's nine trains from these two terminals will be fully operational by that time and will eventually have more than 40 million tons per annum from the Sabine Pass and Corpus Christi liquefaction projects.
Cheniere Energy has closed long-term contracts for nearly three-quarters of its volume in Sabine Pass and 56% in its Corpus Christi project.
As Cheniere Energy keeps closing additional contracts, this reduces its risk related to finding clients for liquefied natural gas. But this doesn't mean that the company won't still have exposure for risk related to natural-gas prices.
These contracts are linked to natural-gas prices in the U.S. called the Henry Hub, which is trading at about $4.1. If prices were to come down, this could reduce Cheniere Energy's revenue.
Natural-gas prices are expected to fall by 14% in 2015, compared with this year, according to the recent outlook from the Energy Information Administration.
Clouding the issue for investors, Cheniere Energy will only start to operate its facilities by the end of next year and all its projects by 2019-2020. In order to determine its valuation, investors need to rely on its projections.
Based on Cheniere Energy's estimates, the earnings before interest, taxes, depreciation and amortization for its two projects and the nine trains will between $3.3 billion and $4.3 billion. Considering the company's enterprise value is $24.2 billion, this means, that its EV/EBITDA is between 5.6 and 7.3, or an average of 6.5.