Intrinsic value of Cheniere Energy - LNG

Previous Close

$41.68

  Intrinsic Value

$3.18

stock screener

  Rating & Target

str. sell

-92%

  Value-price divergence*

0%

Previous close

$41.68

 
Intrinsic value

$3.18

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence*

0%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of LNG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 9.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  373.43
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,283
  2,053
  3,172
  4,743
  6,882
  9,709
  13,348
  17,917
  23,527
  30,273
  38,237
  47,482
  58,051
  69,971
  83,252
  97,890
  113,869
  131,168
  149,757
  169,608
  190,690
  212,975
  236,441
  261,069
  286,849
  313,776
  341,854
  371,095
  401,518
  433,151
  466,030
Variable operating expenses, $m
 
  1,274
  1,965
  2,934
  4,254
  5,998
  8,244
  11,063
  14,524
  18,686
  23,600
  29,296
  35,818
  43,172
  51,366
  60,398
  70,257
  80,930
  92,400
  104,648
  117,655
  131,405
  145,884
  161,079
  176,985
  193,599
  210,923
  228,965
  247,736
  267,254
  287,540
Fixed operating expenses, $m
 
  709
  727
  745
  764
  783
  803
  823
  843
  864
  886
  908
  931
  954
  978
  1,002
  1,027
  1,053
  1,079
  1,106
  1,134
  1,162
  1,191
  1,221
  1,252
  1,283
  1,315
  1,348
  1,382
  1,416
  1,452
Total operating expenses, $m
  1,448
  1,983
  2,692
  3,679
  5,018
  6,781
  9,047
  11,886
  15,367
  19,550
  24,486
  30,204
  36,749
  44,126
  52,344
  61,400
  71,284
  81,983
  93,479
  105,754
  118,789
  132,567
  147,075
  162,300
  178,237
  194,882
  212,238
  230,313
  249,118
  268,670
  288,992
Operating income, $m
  -165
  69
  480
  1,064
  1,864
  2,928
  4,302
  6,032
  8,160
  10,723
  13,751
  17,278
  21,303
  25,845
  30,908
  36,490
  42,585
  49,185
  56,278
  63,854
  71,901
  80,408
  89,366
  98,769
  108,612
  118,894
  129,616
  140,782
  152,400
  164,481
  177,039
EBITDA, $m
  9
  1,059
  2,005
  3,341
  5,165
  7,581
  10,696
  14,612
  19,423
  25,214
  32,053
  39,995
  49,077
  59,322
  70,738
  83,323
  97,064
  111,940
  127,927
  145,000
  163,133
  182,302
  202,487
  223,673
  245,850
  269,014
  293,170
  318,326
  344,500
  371,715
  400,003
Interest expense (income), $m
  66
  759
  1,078
  1,731
  2,647
  3,895
  5,544
  7,667
  10,332
  13,604
  17,540
  22,186
  27,578
  33,744
  40,697
  48,444
  56,983
  66,304
  76,395
  87,239
  98,819
  111,116
  124,116
  137,805
  152,171
  167,209
  182,916
  199,295
  216,352
  234,099
  252,552
Earnings before tax, $m
  -663
  -690
  -598
  -667
  -783
  -967
  -1,242
  -1,635
  -2,173
  -2,882
  -3,788
  -4,908
  -6,275
  -7,899
  -9,789
  -11,955
  -14,398
  -17,120
  -20,117
  -23,385
  -26,918
  -30,709
  -34,750
  -39,036
  -43,559
  -48,315
  -53,301
  -58,513
  -63,952
  -69,618
  -75,513
Tax expense, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -610
  -690
  -598
  -667
  -783
  -967
  -1,242
  -1,635
  -2,173
  -2,882
  -3,788
  -4,908
  -6,275
  -7,899
  -9,789
  -11,955
  -14,398
  -17,120
  -20,117
  -23,385
  -26,918
  -30,709
  -34,750
  -39,036
  -43,559
  -48,315
  -53,301
  -58,513
  -63,952
  -69,618
  -75,513

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  876
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  23,703
  38,015
  58,733
  87,835
  127,444
  179,805
  247,191
  331,803
  435,678
  560,611
  708,098
  879,297
  1,075,024
  1,295,766
  1,541,706
  1,812,772
  2,108,689
  2,429,033
  2,773,286
  3,140,891
  3,531,294
  3,943,986
  4,378,537
  4,834,616
  5,312,015
  5,810,662
  6,330,626
  6,872,122
  7,435,515
  8,021,315
  8,630,179
Adjusted assets (=assets-cash), $m
  22,827
  38,015
  58,733
  87,835
  127,444
  179,805
  247,191
  331,803
  435,678
  560,611
  708,098
  879,297
  1,075,024
  1,295,766
  1,541,706
  1,812,772
  2,108,689
  2,429,033
  2,773,286
  3,140,891
  3,531,294
  3,943,986
  4,378,537
  4,834,616
  5,312,015
  5,810,662
  6,330,626
  6,872,122
  7,435,515
  8,021,315
  8,630,179
Revenue / Adjusted assets
  0.056
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
Average production assets, $m
  18,415
  29,464
  45,522
  68,078
  98,777
  139,360
  191,588
  257,168
  337,677
  434,509
  548,820
  681,509
  833,211
  1,004,299
  1,194,917
  1,405,011
  1,634,365
  1,882,651
  2,149,469
  2,434,385
  2,736,972
  3,056,834
  3,393,637
  3,747,127
  4,117,141
  4,503,624
  4,906,628
  5,326,321
  5,762,985
  6,217,017
  6,688,924
Working capital, $m
  1,161
  456
  704
  1,053
  1,528
  2,156
  2,963
  3,978
  5,223
  6,721
  8,489
  10,541
  12,887
  15,534
  18,482
  21,732
  25,279
  29,119
  33,246
  37,653
  42,333
  47,281
  52,490
  57,957
  63,680
  69,658
  75,892
  82,383
  89,137
  96,160
  103,459
Total debt, $m
  21,688
  30,802
  49,449
  75,641
  111,289
  158,414
  219,061
  295,211
  388,699
  501,139
  633,877
  787,956
  964,111
  1,162,778
  1,384,124
  1,628,084
  1,894,409
  2,182,719
  2,492,547
  2,823,391
  3,174,754
  3,546,177
  3,937,272
  4,347,743
  4,777,403
  5,226,185
  5,694,152
  6,181,499
  6,688,552
  7,215,773
  7,763,750
Total liabilities, $m
  25,099
  34,213
  52,860
  79,052
  114,700
  161,825
  222,472
  298,622
  392,110
  504,550
  637,288
  791,367
  967,522
  1,166,189
  1,387,535
  1,631,495
  1,897,820
  2,186,130
  2,495,958
  2,826,802
  3,178,165
  3,549,588
  3,940,683
  4,351,154
  4,780,814
  5,229,596
  5,697,563
  6,184,910
  6,691,963
  7,219,184
  7,767,161
Total equity, $m
  -1,396
  3,801
  5,873
  8,784
  12,744
  17,981
  24,719
  33,180
  43,568
  56,061
  70,810
  87,930
  107,502
  129,577
  154,171
  181,277
  210,869
  242,903
  277,329
  314,089
  353,129
  394,399
  437,854
  483,462
  531,202
  581,066
  633,063
  687,212
  743,551
  802,132
  863,018
Total liabilities and equity, $m
  23,703
  38,014
  58,733
  87,836
  127,444
  179,806
  247,191
  331,802
  435,678
  560,611
  708,098
  879,297
  1,075,024
  1,295,766
  1,541,706
  1,812,772
  2,108,689
  2,429,033
  2,773,287
  3,140,891
  3,531,294
  3,943,987
  4,378,537
  4,834,616
  5,312,016
  5,810,662
  6,330,626
  6,872,122
  7,435,514
  8,021,316
  8,630,179
Debt-to-equity ratio
  -15.536
  8.100
  8.420
  8.610
  8.730
  8.810
  8.860
  8.900
  8.920
  8.940
  8.950
  8.960
  8.970
  8.970
  8.980
  8.980
  8.980
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  9.000
  9.000
  9.000
  9.000
Adjusted equity ratio
  -0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -610
  -690
  -598
  -667
  -783
  -967
  -1,242
  -1,635
  -2,173
  -2,882
  -3,788
  -4,908
  -6,275
  -7,899
  -9,789
  -11,955
  -14,398
  -17,120
  -20,117
  -23,385
  -26,918
  -30,709
  -34,750
  -39,036
  -43,559
  -48,315
  -53,301
  -58,513
  -63,952
  -69,618
  -75,513
Depreciation, amort., depletion, $m
  174
  990
  1,525
  2,277
  3,300
  4,653
  6,394
  8,580
  11,264
  14,491
  18,302
  22,717
  27,774
  33,477
  39,831
  46,834
  54,479
  62,755
  71,649
  81,146
  91,232
  101,894
  113,121
  124,904
  137,238
  150,121
  163,554
  177,544
  192,099
  207,234
  222,964
Funds from operations, $m
  -635
  300
  927
  1,610
  2,517
  3,686
  5,152
  6,945
  9,091
  11,610
  14,513
  17,809
  21,498
  25,578
  30,041
  34,879
  40,081
  45,635
  51,532
  57,761
  64,314
  71,186
  78,371
  85,869
  93,679
  101,805
  110,253
  119,031
  128,147
  137,616
  147,451
Change in working capital, $m
  -231
  171
  248
  349
  475
  628
  808
  1,014
  1,245
  1,498
  1,768
  2,052
  2,346
  2,646
  2,948
  3,250
  3,547
  3,840
  4,127
  4,407
  4,680
  4,947
  5,209
  5,467
  5,723
  5,978
  6,233
  6,491
  6,754
  7,023
  7,299
Cash from operations, $m
  -404
  129
  679
  1,261
  2,042
  3,058
  4,344
  5,931
  7,846
  10,112
  12,745
  15,757
  19,152
  22,932
  27,093
  31,629
  36,533
  41,795
  47,405
  53,354
  59,634
  66,238
  73,162
  80,401
  87,956
  95,828
  104,020
  112,539
  121,393
  130,593
  140,152
Maintenance CAPEX, $m
  0
  -614
  -982
  -1,517
  -2,269
  -3,293
  -4,645
  -6,386
  -8,572
  -11,256
  -14,484
  -18,294
  -22,717
  -27,774
  -33,477
  -39,831
  -46,834
  -54,479
  -62,755
  -71,649
  -81,146
  -91,232
  -101,894
  -113,121
  -124,904
  -137,238
  -150,121
  -163,554
  -177,544
  -192,099
  -207,234
New CAPEX, $m
  -4,356
  -11,049
  -16,058
  -22,556
  -30,700
  -40,583
  -52,228
  -65,579
  -80,510
  -96,831
  -114,311
  -132,690
  -151,701
  -171,088
  -190,619
  -210,093
  -229,354
  -248,286
  -266,818
  -284,917
  -302,586
  -319,862
  -336,803
  -353,489
  -370,014
  -386,482
  -403,004
  -419,693
  -436,664
  -454,032
  -471,907
Cash from investing activities, $m
  -4,413
  -11,663
  -17,040
  -24,073
  -32,969
  -43,876
  -56,873
  -71,965
  -89,082
  -108,087
  -128,795
  -150,984
  -174,418
  -198,862
  -224,096
  -249,924
  -276,188
  -302,765
  -329,573
  -356,566
  -383,732
  -411,094
  -438,697
  -466,610
  -494,918
  -523,720
  -553,125
  -583,247
  -614,208
  -646,131
  -679,141
Free cash flow, $m
  -4,817
  -11,534
  -16,361
  -22,812
  -30,927
  -40,817
  -52,529
  -66,035
  -81,236
  -97,975
  -116,050
  -135,227
  -155,266
  -175,930
  -197,002
  -218,294
  -239,655
  -260,970
  -282,168
  -303,211
  -324,098
  -344,856
  -365,536
  -386,210
  -406,963
  -427,893
  -449,105
  -470,708
  -492,815
  -515,538
  -538,989
Issuance/(repayment) of debt, $m
  5,194
  9,114
  18,646
  26,192
  35,648
  47,125
  60,647
  76,150
  93,488
  112,440
  132,738
  154,079
  176,155
  198,667
  221,346
  243,960
  266,325
  288,309
  309,828
  330,844
  351,363
  371,423
  391,095
  410,471
  429,660
  448,782
  467,967
  487,346
  507,053
  527,220
  547,977
Issuance/(repurchase) of shares, $m
  0
  5,887
  2,670
  3,577
  4,744
  6,203
  7,981
  10,096
  12,560
  15,375
  18,537
  22,028
  25,848
  29,973
  34,383
  39,061
  43,990
  49,154
  54,542
  60,146
  65,958
  71,978
  78,205
  84,644
  91,299
  98,180
  105,297
  112,663
  120,291
  128,198
  136,400
Cash from financing (excl. dividends), $m  
  4,908
  15,001
  21,316
  29,769
  40,392
  53,328
  68,628
  86,246
  106,048
  127,815
  151,275
  176,107
  202,003
  228,640
  255,729
  283,021
  310,315
  337,463
  364,370
  390,990
  417,321
  443,401
  469,300
  495,115
  520,959
  546,962
  573,264
  600,009
  627,344
  655,418
  684,377
Total cash flow (excl. dividends), $m
  90
  3,468
  4,955
  6,957
  9,466
  12,511
  16,098
  20,212
  24,812
  29,840
  35,225
  40,880
  46,737
  52,710
  58,727
  64,727
  70,661
  76,493
  82,203
  87,779
  93,223
  98,545
  103,764
  108,905
  113,996
  119,070
  124,160
  129,301
  134,530
  139,881
  145,388
Retained Cash Flow (-), $m
  494
  -5,887
  -2,670
  -3,577
  -4,744
  -6,203
  -7,981
  -10,096
  -12,560
  -15,375
  -18,537
  -22,028
  -25,848
  -29,973
  -34,383
  -39,061
  -43,990
  -49,154
  -54,542
  -60,146
  -65,958
  -71,978
  -78,205
  -84,644
  -91,299
  -98,180
  -105,297
  -112,663
  -120,291
  -128,198
  -136,400
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -2,420
  2,285
  3,380
  4,722
  6,308
  8,118
  10,116
  12,252
  14,465
  16,688
  18,852
  20,889
  22,737
  24,344
  25,665
  26,671
  27,339
  27,660
  27,633
  27,264
  26,567
  25,559
  24,261
  22,697
  20,890
  18,862
  16,638
  14,239
  11,683
  8,988
Discount rate, %
 
  16.10
  16.91
  17.75
  18.64
  19.57
  20.55
  21.58
  22.65
  23.79
  24.98
  26.23
  27.54
  28.91
  30.36
  31.88
  33.47
  35.14
  36.90
  38.75
  40.68
  42.72
  44.85
  47.10
  49.45
  51.92
  54.52
  57.25
  60.11
  63.11
  66.27
PV of cash for distribution, $m
 
  -2,084
  1,672
  2,070
  2,383
  2,581
  2,645
  2,577
  2,392
  2,120
  1,795
  1,455
  1,128
  837
  595
  404
  263
  163
  97
  55
  30
  15
  7
  3
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  29.4
  18.3
  11.9
  8.0
  5.5
  3.9
  2.8
  2.1
  1.6
  1.2
  0.9
  0.7
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0

Cheniere Energy, Inc., an energy company, engages in the liquefied natural gas (LNG) related businesses in the United States. It operates through two segments, LNG Terminal Business, and LNG and Natural Gas Marketing Business. The company owns and operates Sabine Pass LNG terminal in western Cameron Parish, Louisiana; and Corpus Christi LNG terminal near Corpus Christi, Texas. It also owns Creole Trail pipeline, a 94-mile pipeline interconnecting the Sabine Pass LNG terminal with various interstate pipelines. In addition, the company is involved in the LNG and natural gas marketing business. Cheniere Energy, Inc. was founded in 1983 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Cheniere Energy (LNG)

Valuation Ratios
P/E Ratio -16.3
Price to Sales 7.7
Price to Book -7.1
Price to Tangible Book
Price to Cash Flow -24.6
Price to Free Cash Flow -2.1
Growth Rates
Sales Growth Rate 373.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -36.4%
Cap. Spend. - 3 Yr. Gr. Rate 6.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.9
LT Debt to Equity -1553.6%
Total Debt to Equity -1553.6%
Interest Coverage -9
Management Effectiveness
Return On Assets -2.6%
Ret/ On Assets - 3 Yr. Avg. -4.3%
Return On Total Capital -3.6%
Ret/ On T. Cap. - 3 Yr. Avg. -6.2%
Return On Equity 53.1%
Return On Equity - 3 Yr. Avg. -2204.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 34.5%
Gross Margin - 3 Yr. Avg. 57.9%
EBITDA Margin -33%
EBITDA Margin - 3 Yr. Avg. -198.2%
Operating Margin -12.9%
Oper. Margin - 3 Yr. Avg. -122.8%
Pre-Tax Margin -51.7%
Pre-Tax Margin - 3 Yr. Avg. -237.7%
Net Profit Margin -47.5%
Net Profit Margin - 3 Yr. Avg. -203.9%
Effective Tax Rate -0.3%
Eff/ Tax Rate - 3 Yr. Avg. -0.3%
Payout Ratio 0%

LNG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LNG stock intrinsic value calculation we used $1283 million for the last fiscal year's total revenue generated by Cheniere Energy. The default revenue input number comes from 2016 income statement of Cheniere Energy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LNG stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 16.1%, whose default value for LNG is calculated based on our internal credit rating of Cheniere Energy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Cheniere Energy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LNG stock the variable cost ratio is equal to 62.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $692 million in the base year in the intrinsic value calculation for LNG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Cheniere Energy.

Corporate tax rate of 27% is the nominal tax rate for Cheniere Energy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LNG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LNG are equal to 1435.3%.

Life of production assets of 106.3 years is the average useful life of capital assets used in Cheniere Energy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LNG is equal to 22.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-1396 million for Cheniere Energy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 233.75 million for Cheniere Energy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Cheniere Energy at the current share price and the inputted number of shares is $9.7 billion.

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COMPANY NEWS

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▶ Tellurian's Souki on Natural Gas, Cheniere Legal Action   [Aug-09-17 02:04PM  Bloomberg Video]
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▶ Oil & Gas Industry Outlook - July 2017   [Jul-20-17 03:10PM  Zacks]
▶ 79% of Analysts Call Cheniere Energy a Buy   [10:35AM  Market Realist]
▶ What Does Cheniere Energys Current Valuation Indicate?   [Jul-19-17 10:37AM  Market Realist]
▶ Poland Seeks To Become EUs Gas Hub   [Jul-12-17 02:00PM  Oilprice.com]
▶ Could Qatars LNG Gamble Increase Tensions In The Region?   [Jul-08-17 12:00PM  Oilprice.com]
▶ Putin And Trump Set To Face Off Over NatGas Market Share   [Jul-04-17 04:00PM  Oilprice.com]
▶ Whats Driving Cheniere Energys Recent Market Performance?   [Jun-23-17 05:19PM  Market Realist]
▶ First tanker with US natural gas reaches Poland   [Jun-08-17 11:26AM  Associated Press]
▶ Texas Oil And Gas Exports Are Booming   [Jun-07-17 07:00PM  Oilprice.com]
▶ Are Wall Street Analysts Bullish on Cheniere Energy?   [May-25-17 09:07AM  Market Realist]
▶ [$$] Blackstones $100 Billion Bridge-and-Tunnel Man   [May-24-17 07:45PM  The Wall Street Journal]
▶ Bullish signs for energy stocks   [01:29PM  CNBC Videos]
Stock chart of LNG Financial statements of LNG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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