Cheniere Energy (LNG 4.44%) stock has shed nearly two-thirds of its market cap since hitting its high two summers ago. The stock is down more than 50% over just the past 52 weeks. And don't look now, but someone just said you should buy it.
This morning, analysts at Scotia Howard Weil announced that they are upgrading Cheniere Energy stock from sector perform to outperform. We don't know a whole lot about exactly why Scotia likes the stock. Neither TheFly.com, nor StreetInsider.com, my two usual sources for quick summaries of analysts' changing ratings, have any details at all on the move (not so much as a price target).
But here are three things we do know about Cheniere Energy, and if you're interested in the stock, these are three things you need to know, too.
Cheniere Energy is building the infrastructure to turn America into a liquefied natural gas exporting superpower. Image source: Cheniere Energy.
Thing No .1: Scotia loves Cheniere -- and so does its CEO
Scanning the news feeds for what might have prompted Scotia's upgrade this morning, only two possibilities really popped out. The first is that Cheniere's new CEO Jack Fusco is eating his own cooking. According to an update from StreetInsider.com, Fusco bought 44,762 shares of Cheniere stock on June 6, paying an average price of $33.51 for each share.
Thing No. 2: That's a lot of money
That works out to a $1.5 million bet by the new CEO that he'll be able to turn around this ship and begin pointing it in the right direction.
How big of a bet is it? According to SEC filings, $1.5 million is more than one full year's salary for Fusco, who is paid $1.25 million annually. It's not quite as big a bet as his potential annual bonus, however, which could stretch to $2.5 million.
Nor was this investment entirely of Fusco's own volition. You see, pursuant to the terms of his contract, "Mr. Fusco has agreed to purchase $10,000,000 worth of common shares of the Company by no later than December 31, 2016." He's also been promised an additional $5 million worth of restricted stock -- given free of charge -- in compensation for his employment over the course of the next three years.
Thing No. 3: And speaking of money ...
The other big development at Cheniere lately is that, in separate announcements, the company has been reported to have issued $1.5 billion in debt via its Sabine Pass Liquefaction subsidiary, and a further $1.25 billion in debt from its Cheniere Corpus Christi Holdings subsidiary.
In each case, the funds will be used "to prepay a portion of the principal amounts currently outstanding" the respective subsidiary's existing debt, and also to cover "fees and expenses associated with the offering."
In other words, all $2.75 billion will be directed toward the effort of rolling over Cheniere Energy's massive $18.4 billion debt load.
Now what?
Well, that's the extent of what we know to be going on at Cheniere right now, which might have prompted Scotia Howard Weil's upgrade. The CEO is buying stock, as it is his contractual obligation to do. And the company is rolling over some debt, rather than paying it down.
Are these reasons good enough to justify encouraging investors to buy into a profitless, debt-laden, cash-burning gas exporter -- without having any idea what analysts even think the stock is worth? Personally, I doubt it, and I place little faith in Scotia's recommendation of Cheniere Energy stock, seeing as according to our own records here at Motley Fool CAPS, Scotia Howard Weil historically ranks among the worst-performing analysts that we track.
Can one hope that as Cheniere completes its transition from a concept in development to a fully fledged LNG export operation, the company will continue to grow its revenue and even begin generating profits? Of course you can. The fact that Cheniere's CEO is putting money on the line suggests he shares this hope, and the fact that the company remains able to roll over its debt suggests Cheniere's bankers aren't entirely without hope, either.
All that being said, hope is hard to value. And unless and until the company begins generating real profits, sufficient to hang a valuation on, I consider Cheniere Energy too risky a stock for the average investor to gamble on.
