Cheniere Energy Partners, L.P. (CQP - Free Report) is well poised to grow on the back of rising demand for low-emission energy sources, and declining operating costs and expenses. However, balance sheet weakness is a persistent concern.
Headquartered in Houston, TX, Cheniere Partners is the owner and operator of regasification units at the Sabine Pass liquefied natural gas (“LNG”) terminal, located in Cameron Parish, LA. It provides clean, secure and affordable LNG to several entities, comprising utilities as well as integrated energy firms all around the world. The Sabine Pass LNG terminal is North America’s first large-scale liquefied gas export facility. The partnership was formed in 2006 by Cheniere Energy, Inc. (LNG - Free Report) .
Cheniere Partners’ units have rallied 34.5% in the past six months compared with 23.1% rise of the industry it belongs to.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Favoring the Stock?
As most of the industries around the globe are looking for ways to decrease greenhouse gas emissions, the demand for LNG is expected to grow gradually, which in turn will enable the partnership to make massive profits from its export facility. Even though the rate of demand growth for LNG has decreased of late due to coronavirus-induced lockdowns, the partnership will benefit in the long run as the economies start lifting travel bans.
Long-term and fixed-fee contracts with clients provide the partnership with a steady revenue source. As such, Cheniere Energy Partners is least exposed to commodity price fluctuations and generates stable fee-based revenues from the large-scale liquefied gas export facility via the contracts.
The partnership’s first-half total operating costs and expenses significantly decreased year over year to $1,840 million. Reduced cost of sales from lower pricing of natural gas feedstock aided Cheniere Partners’ profit levels. Moreover, it has economic hedges to secure natural gas feedstock for liquefaction projects, which will provide a cushion to its bottom line from volatile prices.
However, there are a few factors that are impeding the growth of the stock lately.
As of Jun 30, 2020, the partnership had only $1,341 million in cash and cash equivalents, down from $1,734 million at first quarter-end. Cheniere Partners had a net long-term debt of $17,566 million, higher than $15,591 million in the first quarter. Moreover, considering the current market challenges, it is likely that the energy firm will face difficulties in paying a portion of the long-term debt due for repayment after 12 months.
Rising protests against fossil fuels and delays due to coronavirus-induced lockdowns as well as travel bans are affecting LNG projects’ demand around the globe. LNG is facing competition from renewable energy sources, as investors are pushing companies to opt for renewable energy technologies, keeping in mind the Paris Agreement. While emission from LNG is relatively lower than oil, it is still more than wind or solar energy. This sentiment is pushing more investors toward greener projects, who view investing in LNG facilities as an uneconomical choice.
To Sum Up
Despite significant growth opportunities, Cheniere Partners’ balance sheet weakness is concerning. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Which Way are Estimates Headed?
The Zacks Consensus Estimate for 2020 earnings per share is $2.44, which indicates an 8.4% year-over-year rise. The company beat estimates thrice and missed once in the trailing four quarters, with an earnings surprise of 11.8%.
Stocks to Consider
Some better-ranked players in the energy space include Holly Energy Partners, L.P. (HEP - Free Report) and Royal Dutch Shell plc (RDS.A - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Holly Energy’s bottom line for 2021 is expected to rise 4.8% year over year.
Shell’s bottom line for 2021 is expected to jump 112.5% year over year.
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