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Why Is Cheniere Energy (LNG) Down 1.6% 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 1.6% 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 drivers.

Cheniere Energy Reports Q3 Loss, Revenues Beat Estimates

Cheniere Energy, Inc. recently incurred a loss when it reported third-quarter 2019 results.

This largest U.S. liquefied natural gas exporter posted loss per share of $1.25. However, the Zacks Consensus Estimate was for earnings of 8 cents per share. High operating costs and expenses caused this underperformance. The loss also compares unfavourably with the year-ago earnings of 26 cents.

Owing to higher LNG volumes, quarterly revenues increased 19.3% to $2,170 million from $1,819 million a year ago. The top line also surpassed the Zacks Consensus Estimate of $2,118 million in the quarter under review.

The company posted adjusted EBITDA of $694 million with DCF of around $520 million. During the quarter, Cheniere shipped 108 cargoes, reflecting a 66% surge from the year-earlier figure. Total volumes of LNG exported were 384 trillion British thermal units (TBtu) compared with 228 TBtu in the prior year.

Costs & Balance Sheet

Overall costs and expenses rose 33.6% from the corresponding quarter of last year to $1,863 million. This increase is mainly attributed to higher cost of sales that scaled up to $1,267 million from $1,027 million in the prior-year quarter. Also, operating and maintenance expenses almost doubled to $308 million in the quarter under review. Further, depreciation and amortization expenses soared 88.5% from the year-ago quarter to $213 million.

As of Sep 30, Cheniere had approximately $2,539 million in cash and cash equivalents. Its net long-term debt was $30,795 million (with a debt-to-capitalization ratio of 95.4%).

2019 Guidance

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.

For 2020, the company projects its adjusted EBITDA to increase 30% and come in the range $3,800-$4,100 million with distributable cash flow between $1000 million and $1300 million.

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 about 4.5 million tons per annum (Mtpa). Notably, run-rate 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): Cheniere’s Corpus Christi LNG project, under which the company intends to develop three trains, is predicted to come online in 2019. 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 this year, the first commissioned cargo from Train 2 was dispatched. Now the company is awaiting the first real shipment later this year. Train 3 is currently under construction and the facility 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 9.5 Mtpa.
 

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted 36.61% 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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