Advancing calendar increases my target price for stock pick Cheniere Energy

10/31/2013 7:02 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

To put a value on shares of Cheniere Energy (LNG) I think you use a calendar. (Cheniere Energy is a member of my Jubak’s Picks portfolio http://jubakpicks.com/ )

The company is scheduled to see its Sabine Pass liquefied natural gas export facility go into operation in 2015. Sabine Pass won the first unrestricted license to export natural gas from the United States. The brown field project, so-called because it wasn’t built from scratch but instead represents a conversion of a liquefied natural gas import facility, will be able to grab a first-mover edge, reaping the biggest advantage from the difference between low natural gas prices in the United States, thanks to the gas from shale boom, and high natural gas prices in export markets such as Japan.

At least it will if the plant gets built on time and at projected cost.

Cheniere Energy has applied for a second unrestricted export license for a green field plant at Corpus Christi, Texas. The likely date of that approval has moved up recently as the U.S. Department of Energy has increased the pace of its approvals. The initial costs from Cheniere look to be in line with those at other green field facilities and the company’s track record at Sabine Pass means Cheniere stands a very good chance of securing contracts for all the capacity it can build at Corpus Christi. Right now it looks like Corpus Christi is on schedule for initial production in 2019.

That’s further out than Sabine Pass and that estimate includes more uncertainty, but the logic for investors still holds—Corpus Christi gets more valuable as pages flip over on the calendar—as long as it stays on schedule and at projected cost.

In other words, to set a target price for Cheniere, you don’t increase or decrease your target price on changing estimates of how much revenue its plants will produce, but instead by changing estimates of when that revenue will appear, how certain that time estimate is, and how much cost the company will incur to build the plant that will produce that revenue.

The last time I set a target price for Cheniere was back on September 12 at $38 a share. Since then the company has kept to its schedule and its cost estimates, fine-tuned its costs, and increased its access to financing. All that means that Sabine Pass and Corpus Christi are more likely than they were a month and a half ago.

As of October 31, I’m raising my target price on Cheniere Energy to $44 as of February 2014.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Cheniere Energy as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

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