Cheniere Earnings: Boosting Fair Value to $182 After Upsizing Marketing Contributions for 2024-25

Cheniere’s second-quarter earnings were better than we expected. We are now reasonably confident that the company's results bottomed out for the earnings cycle after the huge profit boosts from the Russian-Ukraine war in 2022 and 2023. We have observed an improvement in marketing spreads from the past few quarters, bringing them close to normalized levels and placing Cheniere in a reasonably well-positioned state for the remainder of 2024 and 2025. After updating our model to reflect an improved marketing outlook for the rest of the year and into 2025, lower SG&A expenses per train, and ongoing share buybacks ($1.7 billion year to date), our fair value estimate has increased to $182 from $161. Our 2024 EBITDA forecast now stands at $6 billion from $5.9 billion, and 2025 is now at $6.6 billion from $6 billion. We continue to value the firm at around 11 times 2028 EBITDA of $7.1 billion, which we left unchanged, after the Midship trains 8 and 9 enter service. The global LNG market continues to shift as we expected. The EU’s gas demand has declined following its shift away from Russian gas and ongoing power demand declines. Consequently, its need for US LNG as a stopgap to meet the differences between EU gas production and overall demand has declined. With lower demand and now lower gas prices, more price sensitive consumers of LNG like India and China have once again resumed their usual role in the market as ongoing demand drivers. LNG imports to both regions are well above 2023 levels, a trend that we expect to continue, driven by at least China’s need to reduce its reliance on coal over time.Cheniere remains awash in cash. Its latest capital allocation plan adds another $4 billion in buybacks by 2027, targeting about 200 million shares outstanding compared to 229 million currently. Further, the firm targets 10% ongoing increases in the dividend to about a 20% payout ratio.