Energy Cheniere (LNG) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.
Over the past month, shares of this natural gas company have returned +9.8%, compared to the +6.7% change in the Zacks S&P 500 composite. During this period, the industry Zacks Oil and Gas – Exploration and Production – United States, which includes Cheniere Energy, lost 0.5%. The key question now is: what could be the future direction of the title?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
For the current quarter, Cheniere Energy is expected to post earnings of $2.83 per share, indicating a +424.1% change from the prior year quarter. The Zacks consensus estimate has changed by +9.4% over the past 30 days.
For the current fiscal year, the consensus earnings estimate of $16.14 indicates a change of +274.5% from the prior year. Over the last 30 days, this estimate has changed by +4.2%.
For the next fiscal year, the consensus earnings estimate of $12.47 indicates a change of -22.7% from what Cheniere Energy is expected to report a year ago. Over the past month, the estimate has changed by +2.1%.
With an impressive externally audited balance sheet, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent change in the consensus estimate, plus three more factors related to earnings estimatesresulted in a Zacks #1 ranking (Strong Buy) for Cheniere Energy.
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a company.
For Cheniere Energy, the current quarter sales consensus estimate of $6.9 billion indicates a year-over-year change of +128.7%. For the current and future fiscal years, the estimates of $29.22 billion and $25.23 billion indicate variations of +84.2% and -13.7%, respectively.
Latest reported results and history of surprises
Cheniere Energy reported revenue of $7.48 billion in the last quarter, representing a year-over-year change of +142.2%. EPS of $7.35 for the same period versus $1.54 a year ago.
Compared to the Zacks consensus estimate of $6.32 billion, reported revenue is a surprise of +18.33%. The EPS surprise was +120.06%.
In the past four quarters, the company has exceeded EPS estimates only once. The company has exceeded consensus earnings estimates twice during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of the reasonableness of its price.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on. ), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.
Cheniere Energy is rated C on this front, indicating that it trades at par with its peers. Click here to see the values of some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz about Cheniere Energy. However, its Zacks No. 1 ranking suggests it could outperform the broader market in the near term.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.