LNG - Cheniere Energy: Buybacks And Attractive Valuation To Propel The Share Price

2024-06-11 04:20:24 ET

Summary

• Cheniere Energy is a leading energy company and one of the largest players in the liquefied natural gas market.
• The company has solid financials and shareholder-friendly capital allocation policy.
• Increased energy prices can positively impact the company’s revenue.
• DCF analysis suggests that Cheniere Energy's shares are undervalued and have significant upside potential.

Investment Thesis

As technical evidence of bottoming commodity prices expands, Cheniere Energy (LNG) may once again be headed in to a higher gas prices environment. Although the impact of higher gas prices on Cheniere Energy's financial statements is multifaceted and significant, influencing both its revenue and operational costs, the company can benefit if it manages to pass the costs onto its customers. As displayed on the graph below, the S&P GSCI index, reflecting commodity prices, compared to the S&P 500 index, reflecting equity prices, has reached levels last seen during the millennium tech bubble or 1970s Nifty Fifty stock bubble. With commodities such inexpensive relative to equities, it may be a question of time before the trend reverses and the prices of both correct at least to their historical mean value. Furthermore, natural gas prices are experiencing their second-highest contango since the 1990s, and history suggests natural gas prices tend to bottom after reaching a steep contango. Hence, higher prices of this critical Cheniere Energy's commodity may be just around the corner....

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