BofA Securities has initiated coverage on shares of Cheniere Energy (NYSE: NYSE:LNG), assigning a Buy rating to the stock with a price target of $215.00.
The firm highlighted the strong contracted nature of the company's earnings before interest, taxes, depreciation, and amortization (EBITDA), noting that over 90% of Cheniere Energy's liquefied natural gas (LNG) is contracted for a duration exceeding 17 years.
This contractual stability is expected to lead to a significant increase in free cash flow starting in 2025.
According to BofA Securities, by the year 2027, Cheniere Energy is anticipated to be able to pay over $20 per share, presenting a clear upside when compared to its peers in the energy sector, such as Kinder Morgan Inc (NYSE:KMI) and Williams Companies Inc (NYSE:WMB), which currently offer around a 7% return.
The firm also suggests that Cheniere Energy's stock could see additional benefits if the company were to be included in the S&P 500 index.
The analyst from BofA Securities also discussed the current pause on LNG permits, stating that the stock is likely to benefit regardless of which administration is in office. The potential lifting of the LNG permit pause is seen as a positive development for Cheniere Energy, but the firm emphasized that the stock has upside potential even without this regulatory change.
In other recent news, Cheniere Energy has undergone significant executive transitions, with Corey Grindal transitioning from his role as Executive Vice President and Chief Operating Officer to Executive Vice President and Advisor.
The company has also reported robust financial results for the second quarter of 2024, with a consolidated adjusted EBITDA of $1.3 billion and a net income of $880 million, exceeding market expectations. Cheniere Energy has also raised its full-year guidance for 2024 and confirmed the CEO's role as President in recent changes to its bylaws.
Venture Global LNG is seeking approval from the U.S. Federal Energy Regulatory Commission to unload the first commissioning cargo of LNG at its Plaquemines export plant, currently under construction in Louisiana. The construction of the two phases at the Plaquemines plant represents a significant investment, estimated at around $21 billion.
Cheniere Energy has secured a 20-year contract with Galp for 0.5 million tons of LNG annually and is progressing on its Stage 3 expansion project.
InvestingPro Insights
Complementing BofA Securities' bullish outlook on Cheniere Energy (NYSE:LNG), recent data from InvestingPro provides additional context to the company's financial position and market performance. With a market capitalization of $41.31 billion, Cheniere Energy is trading near its 52-week high, reflecting investor confidence in line with the analyst's positive stance.
The company's P/E ratio of 9.74 suggests that the stock may be undervalued relative to its earnings, potentially supporting BofA's Buy rating. This is further reinforced by an InvestingPro Tip indicating that Cheniere Energy has been profitable over the last twelve months, with analysts predicting continued profitability this year.
Aligning with BofA's emphasis on Cheniere's strong contracted EBITDA, InvestingPro data shows a robust EBITDA of $9.164 billion for the last twelve months as of Q2 2024. While there has been a 39.59% EBITDA decline over this period, it's important to note that the company still maintains a healthy operating income margin of 49.86%.
InvestingPro Tips also highlight that Cheniere Energy has raised its dividend for 3 consecutive years, with a current dividend yield of 0.95%. This trend of increasing shareholder returns supports BofA's projection of significant free cash flow growth and potential for higher payouts in the future.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Cheniere Energy's investment potential.
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