Corpus Christi Expansions Aim To Boost LNG Capacity But Face Potential Regulatory And Market Risks

Key Takeaways

• Corpus Christi expansion and operational synergies are expected to drive significant growth in EBITDA, cash flow, and improve net margins.
  
• Strategy of share repurchases, dividend increases, and capacity expansions aims to enhance shareholder value and drive long-term growth amid favorable regulatory conditions.
  
• Potential restoration of Russian gas flows could increase competition in Europe, impacting Cheniere's revenue and market share, while long-term contracts limit spot market gains.

Catalysts

An energy infrastructure company, primarily engages in the liquefied natural gas (LNG) related businesses in the United States.

• The commissioning and ramp-up of the first three trains at Corpus Christi Stage 3 is expected to drive year-over-year growth in consolidated adjusted EBITDA and distributable cash flow in 2025, impacting revenue growth as these assets come online.
  
• Plans to advance Corpus Christi Trains 8 and 9 to Final Investment Decision (FID) and ongoing procurement of long-lead-time equipment aim to optimize cost efficiencies, potentially improving net margins by maximizing operational synergies.
  
• The company's strategy of share repurchases and dividend increases is aimed at enhancing shareholder value, which could lead to higher earnings per share (EPS) as the share count reduces and EPS benefits from consolidation.
  
• Cheniere's focus on obtaining permits for future expansions at Sabine Pass and Corpus Christi is intended to enable long-term growth beyond the current pipeline, potentially driving future revenue growth as new capacity is developed to meet increasing LNG demand.
  
• The favorable regulatory environment and potential for improved U.S. LNG export conditions are expected to support long-term strategic growth, impacting revenue streams through enhanced market access and potentially increased export volumes.

Cheniere Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cheniere Energy's revenue will grow by 13.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.0% today to 12.5% in 3 years time.
• Analysts expect earnings to reach $2.8 billion (and earnings per share of $14.13) by about March 2028, down from $3.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.2 billion in earnings, and the most bearish expecting $2.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.0x on those 2028 earnings, up from 15.4x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.7x.
• Analysts expect the number of shares outstanding to decline by 2.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.35%, as per the Simply Wall St company report.

Cheniere Energy Future Earnings Per Share Growth

Risks

• The potential restoration of Russian gas flows into Europe could reintroduce competition for Cheniere's LNG in European markets, potentially impacting revenue and market share.
  
• The tight global LNG supply due to project delays and sanctions may not sustain, as new projects and peace efforts could stabilize markets, potentially narrowing margins.
  
• Volatility in international gas prices has impacted financial results, with a higher proportion of long-term contracts reducing the ability to capitalize on spot market opportunities, thereby affecting net margins.
  
• The need for regulatory certainty in the U.S. could pose risks if the permitting environment changes, potentially delaying project development and affecting future earnings.
  
• Competition and cost pressures in the LNG market have not led to commensurate increases in long-term contract pricing, potentially impacting the long-term profitability of new projects.

Valuation

• The analysts have a consensus price target of $254.261 for Cheniere Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $303.0, and the most bearish reporting a price target of just $220.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $22.4 billion, earnings will come to $2.8 billion, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 8.3%.
• Given the current share price of $224.03, the analyst price target of $254.26 is 11.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.