Improving LNG Export Economics Fetch Cheniere Energy An Upgrade From Morgan Stanley

With oil prices approaching multiyear highs, one Morgan Stanley analyst upgraded Cheniere Energy, Inc. LNG Wednesday. 

The Analyst

Analyst Fotis Giannakoulis upgraded Cheniere Energy from Equal-weight to Overweight and upped the price target from $63 to $80.

The Thesis

Cheniere is poised to take advantage of its leading position and continue growing in small increments, taking advantage of rising global LNG demand and structural natural gas oversupply leading to lower feed gas prices, both of which suggest improving LNG export economics, Giannakoulis said in the upgrade note. (See his track record here.)

Morgan Stanley lowered its long-term Henry Hub natural gas price forecast to $2.50 per MMBtu.

The analyst said he expects the company to benefit from a lack of liquefaction capacity growth after 2020-21.

These factors together will result in margin expansion and capacity growth, Giannakoulis said. Cheniere will continue to add capacity, taking advantage of its solid operational platform as well as its ability to grow in small increments, he said. 

The trade standoff between the U.S. and China is likely to benefit established producers like Cheniere by creating barriers to entry for competition, the analyst said. 

Cheniere is in a position to guarantee the delivery of the contracted volume to its customers as opposed to competing greenfield producers that are seeking to reach final investment decisions on their projects, Giannakoulis said. This means Cheniere is more likely to sign new offtake agreements, he said.

The Price Action

Cheniere Energy shares have gained 27 percent year-to-date.

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