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Why Is Cheniere Energy (LNG) Down 1.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Cheniere Energy (LNG). Shares have lost about 1.3% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Cheniere Energy Posts Surprise Q2 Loss

Cheniere Energy, Inc. slipped to loss when it unveiled second-quarter 2019 results. The largest U.S. liquefied natural gas exporter posted loss per share of 44 cents, in stark contrast with the Zacks Consensus Estimate of earnings of 15 cents. High costs and derivates loss led to the underperformance. The loss also widened from the year-ago loss of 7 cents.
 
Owing to higher LNG volumes, quarterly revenues increased 48.5% to $2,292 million from $1,543 million recorded in the year-ago quarter. The top line also surpassed the Zacks Consensus Estimate of $2,158 million in the quarter under review.

The company posted adjusted EBITDA of $615 million, with DCF of around $120 million. During the quarter, Cheniere shipped 104 cargoes, reflecting an increase of 70% from a year ago. Total volumes of LNG exported in the reported quarter were 360 trillion British thermal units (TBtu) compared with 222 TBtu in the year-ago period.
 
Costs & Balance Sheet
 
Overall costs and expenses rose 54% from the corresponding quarter last year to $1,860 million. The increase is mainly attributed to higher cost of sales that scaled up to $1,277 million from $873 million in the prior-year quarter. Operating and maintenance expenses doubled to $295 million in the quarter under review. Depreciation/amortization and SG&A expenses increased 84% and 5.4% from the prior-year quarter to $204 million and $77 million, respectively.

As of Jun 30, Cheniere had approximately $2,279 million in cash and cash equivalents. It recorded $29,944 million in net long-term debt (with a debt-to-capitalization ratio of 93.7%).
 
2019 Guidance Reiterated
 
Cheniere reiterated its guidance for 2019. It anticipates adjusted EBITDA within $2,900-$3,200 million, with distributable cash flow between $600 million and $800 million.
 
Progress Report
 
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 expected to have a capacity of about 4.5 million tons per annum (Mtpa). Notably, run-rate LNG production is expected 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): Cheniere Energy’s Corpus Christi LNG project, under which the company intends to develop three trains, is expected to come online in 2019. Each train is expected to have a nominal production capacity of 4.5 Mtpa of LNG. Notably, Train 1 is functional and Train 2 is undergoing commissioning. In June 2019, the first commissioning cargo from Train 2 was exported and the firm is geared up for the first shipment from the CCL Train 2 plant later this year. Train 3 is currently under construction and the facility is expected to come online in the second half of 2021.
 
Corpus Christi Expansion Project: Cheniere intends to develop seven midscale liquefaction trains adjacent to the CCL Project. The total production capacity of these trains is expected to be approximately 9.5 Mtpa.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -33.67% due to these changes.

VGM Scores

Currently, Cheniere Energy has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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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