Buy Cheniere Energy: Stock on a Tear

04/04/2014 5:00 pm EST


Jim Jubak

Founder and Editor,

With big news coming from this leading energy company this week, coupled with the possibility of even better good news on the horizon, MoneyShow's Jim Jubak is updating his target price, as of today, April 4, 2014.

Big news this week from Cheniere Energy (LNG) that advances the company’s application for a second unrestricted permit to export liquefied natural gas. Cheniere already has an unrestricted export permit for its Sabine Pass facility, which is expected to begin shipments in 2015. But Cheniere has also applied for a second permit for an export facility at Corpus Christi, Texas.

(Cheniere Energy is a member of my Jubak’s Picks portfolio.)

On April 2, Cheniere announced a contract with Spanish utility Endesa for the purchase of 1.5 million metric tons of liquefied natural gas a year from the Corpus Christi facility for 20 years. The contract is a major step forward for the Corpus Christi permit, since the US Department of Energy wants to see purchase agreements in place before it grants a permit. This is the second purchase agreement for Cheniere at Corpus Christi. In December, Cheniere reported a 20-year agreement with Indonesia’s Pertamina, for the purchase of 0.8 million metric tons of liquefied natural gas a year. The Endesa deal, then gives Cheniere two purchase agreements for the three production trains at Corpus Christi. Those three trains have a total capacity of 13.5 million metric tons of liquefied natural gas a year.

Cheniere also has received other good news on Corpus Christi. To get a permit for the unrestricted export of liquefied natural gas, a facility has to win approval from the US Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC). DOE has accelerated its permit process, but FERC approval has become a major bottleneck, since the commission needs to coordinate studies from several other agencies before it can complete its review. Cheniere has recently received a scheduling notice from FERC, which looks to put that facility on track for a permit ruling by the end of 2014 or early 2015.

The stock has been on a tear recently, climbing 37% from its February 6 low, even after pulling back today. There’s a good possibility that some of that gain has been anticipation that the company will announce good news at its April 7 analyst day. With some, at least, of that good news already reported, I wouldn’t be surprised to see the shares pull back somewhat after the company’s analyst day. I’d use any decent retreat as an opportunity to buy: Cheniere will be the first exporter to actually ship liquefied natural gas from the United States and that first mover price advantage will be significant. In addition, it looks like Cheniere will get a second permit as part of a small group of facilities set to follow Sabine Pass into production.

As of April 4, I’m raising my target price from $52 a share to $63 a share.

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, I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Cheniere Energy as of the end of December. In preparation for closing the fund at the end of May, as of the end of March I had moved the fund’s holdings almost totally to cash.

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