U.S. Markets closed

Is Cheniere Energy, Inc. a Buy?

Reuben Gregg Brewer, The Motley Fool

Cheniere Energy, Inc. (NYSE: LNG) is leading the United States toward a future that includes material liquified natural gas exports. The company's controlled partnership, Cheniere Energy Partners, L.P. (NYSE: CQP), already has the Sabine Pass LNG export facility up and running, rewarding investors with hefty distributions. Cheniere Energy is still building another facility in Corpus Christi that's kept the red ink flowing; however, if the impact of Sabine Pass is any indication, Cheniere Energy could be worth a deep dive.

Losses continue to roll in

Cheniere Energy has lost money in each of the last 10 years. The main reason for the losses have been the company's Sabine Pass and Corpus Christi LNG projects. And while the Sabine Pass is up and running, the construction effort isn't over since the first export facility in Corpus Christi, called a train, isn't scheduled to be completed until 2019 at the earliest.

A liquified natural gas tanker in the water

Image source: Getty Images

The stock, however, has nearly doubled since hitting a low point in early 2016. The main reason is the success of Sabine Pass, which is owned by its controlled partnership, Cheniere Energy Partners. That facility was among the first to start exporting LNG. After years of losses related to the construction of four LNG trains, the partnership started to turn a profit in 2016. Results were even more impressive in 2017.

Cheniere Energy Partners' revenues went from $270 million in 2015 to $1.1 billion in 2016. They took another leap in 2017, rising to $4.3 billion. The partnership's loss narrowed from $1.21 per unit in 2015 to a loss of $0.78 in 2016 before jumping to a profit of $1.56 per unit in 2017. The partnership was paying a steady distribution throughout the construction phase, and it started to up the payout last year.

With customers already lined up for Sabine Pass' LNG facilities once they were completed, the top- and bottom-line improvement was basically like flipping a switch. And with long-term take-or-pay contracts, it looks like there are years of good results ahead.

The future could be bright

Cheniere Energy Partners' success flowed through to Cheniere Energy. Although the company still faces material interest expenses related to the costs of constructing its Corpus Christi project, its top line rose along with its controlled partnership's improved results. Revenues have increased from $271 million in 2015 to $5.6 billion last year. That top-line improvement, a profitable fourth quarter last year, and the rapid turnaround on Cheniere Energy Partners' top- and bottom-lines as Sabine Pass ramped up helps explain why investors have turned positive on Cheniere Energy's stock.

A timeline for the Corpus Christi LNG projects, showing completion dates in 2019 and 2020.

The Corpus Christi timeline. Image source: Cheniere Energy, Inc.

Ultimately, however, an investment in Cheniere Energy isn't about today, it's about the future potential of the company's Corpus Christi project. Although the company turned a profit in the fourth quarter, it still has to finance the completion of that project which will leave it facing the headwind of heavy interest cots over the near term. But if the success of Sabine Pass is any indication of the long-term potential, Cheniere Energy could very quickly start turning a very large profit once the new facility is complete. The cash flow from Corpus Christi is also likely to be used to reduce debt and, thus, trim interest costs, further enhancing the bottom line.

A complex relationship

I wouldn't personally buy Cheniere Energy -- it has a complex corporate structure that includes not just Cheniere Energy Partners, L.P. but also Cheniere Energy Partners LP Holdings LLC (NYSE: CQH), where the only asset is an ownership stake in Cheniere Energy Partners, L.P. Cheniere Energy is attempting to resolve this issue by acquiring Cheniere Energy Partners LP Holdings. Until that process is complete, however, that's just too much corporate complexity for my taste.

However, for those willing to monitor this corporate tangle, Cheniere Energy could see vastly improved results once the construction costs for Corpus Christi subside and revenues start to flow from that facility. Investors are likely to reward it with a higher price at that point, despite the already large advance. That said, for investors who prefer a bird in the hand over two in the bush, Cheniere Energy Partners, L.P. might be a better call, with its 6.6% yield backed by a currently operating and profitable LNG export business.

More From The Motley Fool

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.