What happened
Shares of Tellurian (TELL 7.47%) fell over 21% last month, according to data provided by S&P Global Market Intelligence. The integrated natural gas company is years away from shipping its first cargo of liquefied natural gas (LNG), which caused Stifel analyst Benjamin Nolan to downgrade the stock from buy to hold and slash his target price from $16 to $9.
On the one hand, being hesitant about the company's near-term future isn't a radical position. Tellurian won't have its Driftwood LNG export terminal slinging product across the globe until at least 2023. On the other hand, the facility is expected to generate $2 billion in annual cash flow once operating at full tilt, and has committed partners lined up today.
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So what
Individual investors can't put too much value on analyst upgrades or downgrades. There's relatively little accountability on Wall Street and a long history of awful track records.
Nolan's view in particular is that Driftwood LNG will suffer because of a global supply glut by the time it comes online. That's the exact opposite of the opinion of leaders in the space. For instance, Royal Dutch Shell has sounded the alarm that the planet won't have enough LNG to meet demand by the mid-2020's unless significant investments are made in infrastructure today. While the supermajor is heavily invested in LNG, investors cannot easily dismiss the warning. The argument is relatively persuasive.
Now what
Whether or not investors think Tellurian has a bright future, there's no denying that the next year or two could be rough for the stock. There are few major catalysts on the horizon aside from securing financing and offtake agreements. Putting steel in the ground is unlikely to spur much excitement among investors. Therefore, volatility should be expected, but warnings of a global LNG glut might be a little easier to cast aside.
