Sustained demand for oil and natural gas and tight supplies drive the energy sector’s growth this year and beyond. Cheniere Energy, Inc. (LNG) is aggressively working on its production capacity through expansion projects to meet the growing energy demand. Given its solid fundamentals and bright growth prospects, investing in this top oil stock could be wise now. Let’s discuss this in detail.

LNG is an energy infrastructure company that operates in Liquefied Natural Gas (LNG)-related businesses. It offers safe and clean LNG to integrated energy firms, energy trading entities, and utilities. The company owns and runs two natural gas liquefaction and export facilities at the Sabine Pass LNG and Corpus Christi LNG terminals.

2023 is off to a good start for the company, given its team’s commitment to excellence in terms of operations, execution, and financial discipline, which was reflected in its first-quarter results.

On the back of a solid first quarter, the company has raised its full-year guidance for both EBITDA and distributable cash flow. The company now expects consolidated adjusted EBITDA to come within the range of $8.20 billion to $8.70 billion, while distributable cash flow is expected to arrive between $5.70 billion and $6.20 billion.

Shares of LNG have gained 11.2% over the past year to close its last trading session at $148.80.

Here is what could shape LNG’s performance in the near term:

Positive Recent Developments

In March, LNG’s certain subsidiaries filed an application to the Federal Energy Regulatory Commission (FERC) seeking site authorization to construct and operate the CCL Midscale Trains 8 & 9 Project under the Natural Gas Act. The authorization could benefit LNG by enabling it to generate revenue from producing and selling natural gas.

On February 23, Cheniere Energy Partners, L.P. (CQP), a subsidiary of LNG, announced that certain of its subsidiaries initiated the pre-filing review process under the National Environmental Policy Act with the FERC for the proposed Sabine Pass Stage 5 Expansion Project (the SPL Expansion Project) adjacent to the existing Sabine Pass Liquefaction Project (the SPL Project).

The SPL Expansion Project, designed for a production capacity of 20 million tonnes per annum of liquefied natural gas, would utilize the existing infrastructure at the SPL Project and include improvements such as optimized ship loading at the marine facilities.

The project is expected to increase production capacity, utilize existing infrastructure, and lower capital expenditures. This would enable LNG to meet the growing demand for liquefied natural gas, expand market share, and generate higher revenue, benefiting the company's bottom line.

Robust Financials

For the first quarter that ended March 31, 2023, LNG’s income from operations came in at $7.99 billion, compared to a loss of $613 million in the prior year’s period. Moreover, net income attributable to common stockholders and EPS stood at $5.43 billion and $22.10, compared to a loss and loss per share of $865 million and $3.41, respectively.

As of March 31, 2023, the company's cash and cash equivalents amounted to $2.95 billion, compared to $1.35 billion as of December 31, 2022. Also, its current liabilities decreased to $3.53 billion, compared to $6.80 billion as of December 31, 2022.

Solid Growth Record

Over the past three years, LNG’s revenue surged at a remarkable CAGR of 51.7%, while its EBITDA and levered free cash flow rose at CAGRs of 53.2% and 287.4%, respectively. LNG’s net income and EPS witnessed impressive growth with CAGRs of 106.2% and 107.2%, respectively, while its total assets grew at a 142.8% CAGR over the same time frame.

Favorable Analyst Estimates

Analysts expect LNG’s EPS for the current quarter (ending June 2023) to come in at $3.46, representing an increase of 19.3% year-over-year. The consensus EPS estimate of $21.06 for the fiscal year 2023 indicates a 273.4% year-over-year increase. Also, the company’s EPS is expected to grow 24.8% per annum over the next five years.

Discounted Valuation

In terms of trailing-12-month P/E, LNG is trading at 4.87x, 30.4% lower than the industry average of 6.99x. The stock’s trailing-12-month EV/EBITDA of 4.48x is 7.2% lower than the industry average of 4.82x.

In addition, the stock’s trailing-12-month EV/EBIT of 4.87x compares with the 7.00x industry average, while its trailing-12-month Price/Cash Flow multiple of 3.22 compares with the industry average of 3.70.

High Profitability

LNG’s trailing-12-month EBITDA margin of 43.2% is 21.4% higher than the 35.6% industry average. Its trailing-12-month net income margin of 23.38% is 50.2% higher than the 15.56% industry average. Also, LNG’s trailing-12-month levered FCF margin of 20.71% compares to the industry average of 6.33%.

Furthermore, the stock’s trailing-12-month cash from operations of $11.29 billion is significantly higher than the industry average of $561 million, while its trailing-12-month asset turnover ratio of 0.82x compares to the 0.66x industry average.

POWR Ratings Show Promise

LNG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. LNG has a B grade for Value and Quality, consistent with its lower-than-industry valuation and higher-than-industry profitability.

LNG has topped the Energy - Oil & Gas industry. Click here to access LNG’s Stability, Growth, Momentum, and Sentiment ratings.

View all the top stocks in the Energy - Oil & Gas industry here.

Bottom Line

Strong demand for natural gas and various expansion projects to increase production capacity should drive the company’s growth. Given LNG’s solid financials, high profitability, low valuation, and promising growth prospects, this stock could be an ideal buy now.

How Does Cheniere Energy, Inc. (LNG) Stack Up Against Its Peers?

While LNG has an overall POWR Rating of A, equating to a Strong Buy, one could also check out other stocks within the Energy - Oil & Gas industry with a B (Buy) rating: Valero Energy Corporation. (VLO), Weatherford International PLC (WFRD), and MV Oil Trust (MVO).

What To Do Next?

Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:

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LNG shares were trading at $149.76 per share on Tuesday afternoon, up $0.17 (+0.11%). Year-to-date, LNG has gained 0.13%, versus a 7.88% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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