Why Is Cheniere Energy (LNG) Down 31% Since Last Earnings Report?

A month has gone by since the last earnings report for Cheniere Energy (LNG). Shares have lost about 31% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cheniere Energy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Cheniere Energy Q4 Earnings and Sales Beat Estimates

Cheniere Energy, Inc. recently reported strong fourth-quarter 2019 results.

This largest U.S. liquefied natural gas exporter delivered earnings per share of 71 cents, beating the Zacks Consensus Estimate for earnings of 54 cents. The figure also skyrocketed 173% from the year-ago earnings of 26 cents. Solid contribution from LNG revenues led to this outperformance.  Precisely, revenues from LNG came in at $2,871 million, surpassing the Zacks Consensus Estimate of $2,706 million and also increasing 27.8% from the year-ago value of $2,245 million.

Owing to higher LNG volumes, quarterly revenues rose 26.2% to $3,007 million from $2,383 million a year ago. The top line also beat the Zacks Consensus Estimate of $2,657 million in the quarter under review.

The company posted adjusted EBITDA of $987 million with DCF of around $780 million. During the quarter, Cheniere shipped 130 cargoes, jumping 62.5% from the year-earlier figure. Total volumes of LNG exported were 457 trillion British thermal units (TBtu) compared with 284 TBtu in the prior year.

Costs & Balance Sheet

Overall costs and expenses surged 33.6% from the corresponding quarter of last year to $1,991 million. This increase is mainly attributed to higher operating and maintenance expenses that more than doubled to $330 million in the quarter under consideration. Also, depreciation and amortization expenses soared 100.9% from the year-ago quarter to $233 million. Further, selling, general and administrative expenses scaled up to $88 million from $75 million in the prior-year quarter.

As of Dec 31, Cheniere had approximately $2,474 million in cash and cash equivalents. Its net long-term debt was $30,774 million (with a debt-to-capitalization ratio of 92.6%).

2020 Guidance

Cheniere reiterated its guidance for the full year. It anticipates adjusted EBITDA within $3.8-$4.1 billion with distributable cash flow between $1 billion and $1.3 billion.

Project Updates

Sabine Pass Liquefaction Project (SPL): Sabine Pass is North America’s first large-scale liquefied gas export facility. Cheniere intends to construct up to six trains at the Sabine Pass with each train’s expected capacity to be 4.5 million tons per annum (Mtpa). Notably, run-rate of LNG production is anticipated within 4.7-5 Mtpa. While Trains 1 through 5 are functional, Train 6 is currently under construction with completion expected within the first half of 2023. 

Corpus Christi Liquefaction Project (CCL): Under this project, the company intends to build three trains. Each train’s estimated nominal production capacity is 4.5 Mtpa of LNG. Notably, Train 1 and 2 are functional while Train 3 is under construction. In June 2019, the first commissioned cargo from Train 2 was dispatched. Train 3 is expected to enter service in the first half of 2021.

Corpus Christi Expansion Project: Cheniere aims to develop seven midscale liquefaction trains adjacent to the CCL Project. Total production capacity of these trains is assumed to be 10 Mtpa.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -36.14% due to these changes.

VGM Scores

Currently, Cheniere Energy has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cheniere Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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