Top LNG Producer Near Buy Point Is Churning Out Cash

Cheniere Energy

Cheniere Energy

LNG

$0.64


0.37%


27%

IBD Stock Analysis

• Consolidation holds support at short-term 10-day moving average

Composite Rating

Industry Group Ranking

Emerging Pattern

Consolidation

* Not real-time data. All data shown was captured at
3:28PM EDT on
10/20/2022.

Cheniere Energy (LNG), Thursday’s IBD Stock Of The Day, is the biggest U.S. producer of liquefied natural gas. The company is setting up for a long, profitable run meeting Europe’s energy needs. LNG stock is also setting up, close to a buy point, supported by this week’s news that an attempt by the European Union to cap the price of natural gas imports met strong resistance from Germany.

However, EU countries will continue to discuss combining their purchasing clout to improve their bargaining position.

The U.K. government, meanwhile, confirmed on Friday that it’s in talks for an LNG purchase agreement with a number of companies, including Cheniere.

European LNG Demand

In the first half of 2021, less than 40% of Cheniere’s cargoes of LNG landed in Europe. That jumped to more than 70% through this year’s second quarter, even as the company ramped up new export capacity. The urgency of Europe’s natural gas shortage only intensified last month. That is when an explosion disabled the Nord Stream 1 pipeline from Russia that had once supplied 40% of the European Union’s natural gas.

Heavy demand from EU countries has fueled a bidding war, boosting Cheniere’s LNG margins well above historical levels. That’s helped to bolster Cheniere’s financial strength, bolstering capital returns to shareholders. This is happening even as the company undertakes a major expansion of its Corpus Christi, Texas, LNG operations.

After paying down $4 billion in debt over the prior 12 months, Cheniere said on Sept. 12 that it was boosting its share buyback authorization by $4 billion. It also hiked its quarterly dividend to $1.58 per share (yielding 0.9%) on an annualized basis. At the same time, Cheniere also boosted guidance for 2022 adjusted EBITDA — earnings before interest, tax, depreciation and amortization — to a range of $11-$11.5 billion from $9.8-$10.3 billion.

Natural gas prices in the U.S. hit a seven-month low on Thursday as the Energy Information Administration showed that natural gas storage levels continue to build. That may be partly due to a prolonged outage at Freeport LNG’s Texas facility that processes about 20% of U.S. LNG exports.

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Even so, natural gas prices remain up 46% since the start of the year, and 149% above pre-pandemic levels at the end of December 2019.

Cheniere has limited exposure to natural gas price swings in the U.S., with contracts that include variable fees to cover the cost of its natural gas purchases.

LNG Stock

LNG stock rose 1.6% to 173.55 in Thursday stock market action. After breaking above a buy point on Aug. 10 and running up 19%, LNG stock has been consolidating for the past five weeks.

In mid-September and again last week, LNG stock ran into resistance around 178.60. A break above that level could be seen as a possible entry point. But buying before the current market correction gives way to a new uptrend would be betting against the market.

A more fruitful setup might see LNG stock retreat to its 10-week/50-day moving average and bounce higher in a new uptrend. A pullback to the 10-week line is often when institutional investors step in. A bounce off that line for leading stocks can be a buy signal in the right market environment.

Be sure to read IBD’s daily afternoon The Big Picture column to stay on top of the market trend and what it means for your trading decisions.

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