In the last month, shares of companies operating in the natural gas segment have rallied powerfully. For example, shares of Tellurian (TELL) and Cheniere Energy (LNG) have surged by 10% and 16% in price, respectively, since September 15. Both stocks have also outperformed the broader markets so far this year—Tellurian is up 176% in price while Cheniere Energy has gained 75% year to date.
Natural gas prices hit a multi-year high in the U.S. recently, and increased in other global regions also, including Europe and Asia, and was a key driver of higher stock prices for TELL and LNG. The increase in prices can be attributed to a number of factors, including lower production amid the pandemic and the effect of hurricanes in the Gulf of Mexico, which hampered production.
But let’s see if the two stocks can continue their market-beating performance in the final quarter of 2021, and which of the names is the better buy currently.
The bull case for Tellurian
Houston, Tex.-based Tellurian exports LNG, providing the company with solid long-term prospects. The company aims to build an LNG export facility on the gulf coast for $27 billion, which is ambitious to say the least given the company reported $37.4 million sales of last year. The company depends on partnerships with global energy heavyweights that purchase, and ship LNG produced by TELL.
In July, Tellurian signed a 10-year contract with Royal Dutch Shell to supply three million metric tons of LNG each year. And in the last few months, it has secured annual long-term contracts to ship nine million metric tons of LNG.
These contracts ensure that the LNG plants that Tellurian aims to build will be working at full capacity from inception, making the investment more profitable.
Tellurian sales are forecast to more than double to $81 million in 2021. and increase by 65% to $133.5 million in 2022. Its loss per share is expected to narrow from $0.79 in 2020 to $0.12 in 2022.
The bull case for Cheniere Energy
An energy infrastructure company, Cheniere Energy in Houston, Tex., is valued at a $17 billion market cap. It is engaged in the LNG or liquified natural gas business in the U.S. The company owns and operates the Sabine Pass LNG terminal in Louisiana and the Corpus Christi LNG terminal in Texas. It is also involved in the LNG and natural gas marketing business.
Cheniere Energy has managed to increase its sales from $9.35 billion in 2020 from $5.6 billion in 2017. Higher commodity prices should allow the company to increase top-line by 39.9% to $13.1 billion in 2021 and by 13% to $14.81 billion in 2022. Also, its earnings per share is forecast to by $7.56 next year compared to a $0.34 loss per share in 2020.
Cheniere Energy stock is valued at a forward price to 2022 sales multiple of less than 2x and a price to earnings ratio of 14x, which is very reasonable considering its growth forecasts.
The verdict
We can see that Cheniere Energy is undervalued, while Tellurian is a high-risk high-reward bet. Both stocks should continue to generate outsized gains in the next year. But for the more risk averse investor, we think it makes sense to gain exposure to Cheniere Energy at current prices.
TELL shares were unchanged in after-hours trading Friday. Year-to-date, TELL has gained 193.75%, versus a 20.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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