5 Best MLP and Pipeline Stocks To Buy Now

2. Cheniere Energy Inc (NYSE:LNG)

No of HFs: 40

Total Value of HF Holdings: $1.97 Billion

Yield: NA

Cheniere Energy Inc. is the biggest exporter of natural gas in the US. The company was mentioned in an article about 11 Countries with Highest Natural Gas Reserves. The company owns and operates liquified natural gas receiving terminals and liquified natural gas pipelines.

In an article, Horizon Kinetics mentioned some of their comments for the stock.

“Given the abundance of natural gas being produced in the United States right now, Cheniere has embarked upon an expansion strategy, which will consist of three additional trains at a new export facility in Corpus Christi, Texas (strategically located near the Permian Basin). Commercialization of two of these trains is expected to occur in 2019, with the total project reaching completion in 2021. Based on current plans, the company will have nine full-size trains operating overall, as well as several smaller trains at the Texas location.

Cheniere is in the middle of a long-term growth expansion that will add significant capacity in coming years (and quite a bit in 2019 alone). It currently has $32 billion in total assets (and $28 billion of debt). One way to roughly estimate the earnings power of this balance sheet is to compare the returns of the oil/gas pipeline companies – a somewhat similar set of regulated energy companies with long-term revenue contracts. Based on a sample of the largest pipeline operators, the after-tax return on assets is in the range of 3%-10%. If Cheniere can only earn a 6% ROA, it would generate over $7/share of net earnings. At a low multiple of 12x, the share price would be $89, which is a significant premium over the current price.

Additionally, only half of the company’s assets are actually operational, while the balance still represents construction-phase projects. Based on income recorded in 2018 relative to the operational assets, the longer-term ROA (when all construction is finished and the assets are mobilized) might be closer to 8%. This would suggest a share price of roughly $120, which is twice the current price.”