Please ensure Javascript is enabled for purposes of website accessibility

Checking In on Cheniere Energy Stock

By Rich Smith - May 19, 2016 at 5:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings news, and a big change in management rock the stock.

LNG Total Return Price Chart

Investors reacted badly to news of weak revenue growth and swelling losses at Cheniere Energy. LNG Total Return Price data by YCharts.

It's been an eventful week and a half for Cheniere Energy (LNG -0.81%), the Houston-based natural gas company that's trying to build a business exporting American liquefied natural gas to the world. Let's run down the events as they happened and see if we can make sense of how Mr. Market is reacting to them.

Earnings news and ...

We'll begin with earnings. On Thursday, May 5, Cheniere announced its fiscal first-quarter 2016 earnings results -- or rather, its fiscal Q1 "loss results." Cheniere, which according to data from S&P Global Market Intelligence hasn't earned a single full-year profit in any of its past 20-odd years as a public company, held true to form in Q1 2016, reporting $1.41 per share in losses over the past three months. That was 19% more money than it lost in the year-ago quarter -- and you can see how investors reacted to this news in the preceding chart.

Cheniere has finally begun exporting LNG to the global market, but is still ramping up operations. As management reported, it exported a total of four "LNG commissioning cargoes" in Q1, and had exported a further three in the month since Q1 officially ended (seven total). This implies a run-rate of approximately nine cargoes per quarter going out at present, more than twice as many as left port last quarter.

In management's opinion, this increase in the pace of LNG exports marked the company's "transition from a development company into an operating one." In further demonstration of the transition, Cheniere is proceeding with plans to activate a second "train" for liquefying gas for transport. From that point on, export activity should only accelerate. Management has outlined plans to open at least 11 separate trains eventually, and has made equity investments in another two.  

Unfortunately for investors looking for a sign that Cheniere will turn profitable in the near future, continuing to build out the company's infrastructure comes at a cost -- in this case, operating costs 24% higher than Cheniere incurred in Q1 2015. Revenues to offset those operating costs, on the other hand, are still a ways off. They will not begin flowing in significant quantity until the company's Cheniere Energy Partners subsidiary, which owns most of the company's assets, begins generating significant profits. Cheniere Energy Partners was profitable last quarter, but earned only $0.02 per share..

 ... a new CEO

Cheniere's next major development came seven days after earnings -- and again, you can see the market's reaction to it in the preceding chart. On the morning of May 12, Cheniere announced that interim CEO Neal Shear has stepped down from his post to be replaced by new hire Jack Fusco, the one-time CEO, and most recently executive chairman, of Calpine Corporation (NYSE: CPN), a wholesale power generation company that is itself a big consumer of natural gas.

After selling off Cheniere Energy stock in response to the earnings news, investors flocked back to the stock on learning of the change in management -- but perhaps they returned too soon.

Cheniere Chairman G. Andrea Botta, you see, hailed Fusco as a man who "has spent over 30 years in the energy industry and has significant experience leading companies with large-scale, asset-intensive portfolios," and that is true. What's also true, however, is that Fusco's term at Calpine wasn't exactly what many investors would describe as a "success."

Navigating the turbulent natural gas market can't have been easy these past eight years, and Fusco deserves credit for keeping his old company (mostly) profitable during his tenure at Calpine. Still, when Fusco took over as CEO of Calpine in August 2008, the company's stock was selling for roughly $18 per share. Nearly eight years later, when he left Calpine, the stock was selling for less than $15 per share -- down 20%. So while Cheniere shareholders may have been looking forward to a change in management, I'm not convinced this is a change they can believe in.

Could I be wrong? Certainly. And there's certainly an argument to be made that Cheniere's transformation from what was essentially a concept in development, to a fully fledged LNG export operation, called for a change in management style. That said, Fusco has just come aboard a tanker loaded not just with LNG, but with $16.6 billion in long-term debt, no profits to pay it with, and $7.7 billion in annual cash burn.

If you ask me, the biggest problem with Cheniere going forward isn't just its new captain. It's the ship itself.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cheniere Energy, Inc. Stock Quote
Cheniere Energy, Inc.
$131.95 (-0.81%) $-1.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.