Shares of Cheniere Energy (LNG) moved 0.3 % during today's morning session. The stock seems to be fairly valued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's strong growth indicators and positive market sentiment.
Cheniere Energy, Inc., an energy infrastructure company, primarily engages in the liquefied natural gas (LNG) related businesses in the United States. The large-cap Utilities company is based in Houston, United States and has 1,551 full time employees.
LNG's P/E Ratio Is Better Than the Sector Average
Compared to the Utilities sector's average of 22.89, Cheniere Energy has a trailing twelve month price to earnings (P/E) ratio of 5.1 and an expected P/E ratio of 13.4. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $31.35 and $11.88 respectively.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Cheniere Energy's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.
Cheniere Energy Is Fairly Valued in Terms of Expected Growth
Another factor pointing to Cheniere Energy's value is its PEG ratio of 0.22. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
LNG Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Cheniere Energy's P/B ratio of 20.3 is higher than its sector average of 1.03, such a margin of safety does not exist for the stock.
Investors Stand to Gain from LNG's Cash Flows
Cheniere Energy has strong cash flows. With a coefficient of variability of 216.5% and an average growth rate of 68.7%, the company is effectively turning its revenue into cash. We calculate Cheniere Energy's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a -12.0% rate, versus 54.8% for operating expenses:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 10,523,000 | -1,830,000 | 8,693,000 | 478.38 |
| 2021-12-31 | 2,469,000 | -966,000 | 1,503,000 | 361.85 |
| 2020-12-31 | 1,265,000 | -1,839,000 | -574,000 | 53.07 |
| 2019-12-31 | 1,833,000 | -3,056,000 | -1,223,000 | n/a |
Cheniere Energy's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Cheniere Energy's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Cheniere Energy's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 33,428,000 | 26,751,000 | 19.97 | 193.25 |
| 2021-12-31 | 15,864,000 | 14,784,000 | 6.81 | -85.06 |
| 2020-12-31 | 9,358,000 | 5,093,000 | 45.58 | 14.98 |
| 2019-12-31 | 9,730,000 | 5,873,000 | 39.64 | n/a |
Cheniere Energy's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 33,428,000 | 2,118,000 | 13.64 | 410.71 |
| 2021-12-31 | 15,864,000 | 1,776,000 | -4.39 | -115.58 |
| 2020-12-31 | 9,358,000 | 1,628,000 | 28.18 | 15.02 |
| 2019-12-31 | 9,730,000 | 1,473,000 | 24.5 | n/a |
Cheniere Energy's cost of revenue is growing at a rate of 46.1% in contrast to 9.5% for operating expenses. Sales revenues, on the other hand, have experienced a 36.1% growth rate. As a result, the average gross margins growth is -15.8 and the average operating margins growth rate is -13.6, with coefficients of variability of 63.8% and 94.4% respectively.
Cheniere Energy Benefits From Positive Market Signals
The market sentiment regarding Cheniere Energy is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $236.0 to $173.0. LNG is trading -20.15% away from its target price of $198.84. 1.4% of the company's shares are tied to short positions, and 88.2% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-03-31 | Vanguard Group, Inc. (The) | 10% | 23,516,371 | $3,733,929,358 |
| 2023-03-31 | Blackrock Inc. | 9% | 22,604,099 | $3,589,078,811 |
| 2023-03-31 | FMR, LLC | 5% | 11,260,165 | $1,787,888,984 |
| 2023-03-31 | JP Morgan Chase & Company | 3% | 6,467,856 | $1,026,966,167 |
| 2023-03-31 | State Street Corporation | 3% | 6,460,391 | $1,025,780,875 |
| 2023-03-31 | Blackstone Inc | 3% | 6,167,974 | $979,350,904 |
| 2023-03-31 | Manufacturers Life Insurance Co. | 2% | 3,989,706 | $633,485,513 |
| 2023-03-31 | Tortoise Capital Advisors, LLC | 1% | 3,548,411 | $563,416,694 |
| 2023-03-31 | Morgan Stanley | 1% | 3,409,316 | $541,331,190 |
| 2023-03-31 | Geode Capital Management, LLC | 1% | 3,363,669 | $534,083,359 |
