Despite the delay in the approval of gas exports, Cheniere Energy (LNG) has bright prospects based on its development of the Sabine Pass plant, an improvement in the construction of terminals and pipelines, and the expectation it will get an export license. So far, Cheniere is the only company out of 15 participants to get the conditional approval to export liquefied natural gas. In our opinion, there is a great probability that the company will completely get this approval, primarily due to the government planning to utilize its excess supply of gas. The phenomena of gas extraction through hydraulic fracturing has created excess gas supply and exerted a downward pressure on gas prices. We believe that in order to stabilize natural gas demand and supply, the government will soon take this initiative of exporting excessive gas and enable Cheniere to generate high revenues in the coming period.
The Obama administration has shown its reluctance to provide an export license to Cheniere Energy by offering a justification to review the environmental assessment of the project. The Department of Energy has revealed that a third party is studying the possible economic impact of liquefied natural gas exports, and how beneficial it will be for the country. According to the DOE, the report is expected to come out by the end of 2013. But in our opinion, the winner of the Nov. 6 presidential election will give a positive signal to natural gas exports, whether it's Romney or Obama. Romney has plans to increase natural gas drilling activity in the country. On the other hand, Obama has also expressed his aim to increase natural gas drilling activity in the country.
Cheniere Energy is the only company capable of getting conditional approval to export liquefied natural gas through its Sabine Pass. The Sabine Pass will be the biggest plant for the export of liquefied natural gas, and contains a high output capacity of 18 Mtpa. The total projected cost on the project will be around $10 billion and is expected to create a large amount of revenue for the company.
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Cheniere Energy has showed an upside of 18% over the course of the last three months, as reflected in the above graph. Its 50-day and 200-day moving averages are $15.80 and $15.08, respectively. The stock has shown an upside based on the expected approval of export through the Sabine Pass. In our opinion, the shares will show further upside, as the demand of natural gas is significantly increasing around the world and Cheniere is the only company in the United States with a high capacity export terminal -- and is expected to get a license approval as well. British company Noble Clean (NOBGY.PK) has signed an agreement to import excess liquefied natural gas, and there are many other companies around the world that are looking for liquefied natural gas imports to meet their energy needs.
Cheniere's stock is trading at a price/sales of 9.97 times, a price/book of 8.5 times, and EV/revenue of 18.3 times. We believe its valuations will improve after the government gives it the license to export liquefied natural gas.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.