Cheniere Energy (LNG) – Strong Fundamentals Point to Future Growth

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
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.