Natural gas has attracted a lot of attention in the past year as prices have reached decade lows due to the fracking boom. Cheniere Energy
The bet on import terminals turned out to be a bad one.
The company was founded in 1996 as an oil and gas exploration company but switched its focus to importing and regasification in 2000. In its 16 years, Cheniere has racked up more than $1.3 billion in total losses and nearly $2.7 billion in debt. Despite what looks like a perennially dysfunctional business, its prospective export terminal offers a compelling reason to invest. Let's take a look at that and two other reasons you might want to buy Cheniere Energy.
Sabine Pass Terminal
Several events have taken the Sabine Pass Export Terminal from fantasy to reality over the past year, including approval from the Department of Energy and more customers signing purchasing contracts. In the process, Cheniere has jumped from a 52-week low of $3.17 all the way up to nearly $19 in April. The company plans to begin exporting LNG by late 2015, shipping about 16 million tons per year (equal to 832 million Btu.) Customers include BG Group, Gas Natural Fenosa, Gail (India) Ltd., and Korea Gas.
With gas prices in Asia between $14/MMBtu to $16/MMBtu and $9/MMBtu to $12 per MMBtu in Europe, exporting gas at a North American market price of under $3/MMBtu seems like a no-brainer. At today's prices, it would cost about $9/MMBtu for Cheniere to liquefy and export the gas, meaning selling its full capacity to Asia could yield gross profits around $5 billion. By comparison, the company currently has a market cap under $2 billion.
While some may remain skeptical of market prices holding up or Cheniere escaping from its huge debt burden, some big names have stepped in to provide the capital Cheniere needs. Private equity firm Blackstone Group
A recent buy rating from Citigroup was a further indication of Wall Street's confidence in LNG exports. The Citigroup analyst said that all the pieces appear to be falling into place for the project and gave it a price target of $26, almost twice as high as its current value. He expects the stock to rise once construction begins. The company also recently received a credit rating upgrade from Standard & Poor's from a "B-" to a "B+" due its moves to pay down debt with cash received from equity offerings.
Cheniere has pulled back sharply from highs it reached near $19 in April. The stock now trades around $14, and with a P/S ratio of 6.6 it looks comparable to other growth stocks. Shares have also gotten a short-term boost from rising natural-gas prices. United States Natural Gas
Considering that optimism is only likely to build as the company breaks ground on the export facility, a better buying opportunity may not come in the future.
Several factors could disrupt Cheniere's path to riches. Market prices could easily change between now and 2015, and, of course, it's not the only company attempting to get in on the LNG export bonanza. ExxonMobil
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Fool contributor Jeremy Bowman holds no positions in the companies in this article. The Motley Fool owns shares of JP Morgan Chase and Citigroup. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.