So far this year, natural gas prices have plummeted to record lows, driven by record-high production, mild winter weather, and a resulting surplus. Between January and June, the average price at the Henry Hub benchmark fell 20% to $2.56 per million British thermal units (MMBtu), hitting their lowest levels since 1997. These price declines have created a volatile market, presenting both risks and opportunities for investors.
The energy sector faces a mix of challenges and prospects. U.S. production has slightly decreased since peaking at 106 billion cubic feet per day in late 2023, but the current inventory levels remain high, keeping prices suppressed. The Energy Information Administration (EIA) forecasts that natural gas prices will remain below $3.00/MMBtu for the remainder of 2024, averaging around $2.20/MMBtu.
Concerns about China's demand and ongoing global market fluctuations have added to the uncertainty. The ongoing wildfires in Canada’s oil sands region have impacted production, providing some support to oil prices, which often correlate with natural gas prices. Analysts suggest that while the market faces uncertainties, the expected Federal Reserve interest-rate cuts could boost oil demand, indirectly influencing natural gas prices.
For those looking to navigate these choppy waters, investing in EQT Corporation (EQT) could be promising with its strong financial performance and growth potential. On the other hand, it could be wise to steer clear of Cheniere Energy, Inc. (LNG), given its bleak financial outlook. Let’s look at these stocks in detail.
Stock to Buy:
EQT Corporation (EQT)
EQT Corporation (EQT) is the leading independent natural gas producer in the United States, with a core asset base across the Appalachian Basin. Recently, the company closed its acquisition of Equitrans Midstream Corporation earlier than expected, which resulted in some savings. The operation of the Mountain Valley Pipeline, facilitated by this acquisition, is set to transport a significant amount of Marcellus production from the oversupplied Marcellus Basin to markets with solid pricing.
This move is expected to boost the average price received for their production, regardless of whether natural gas prices recover as anticipated. Plus, the acquisition is expected to materially decrease the cost of supply on a per-unit basis.
On July 16, EQT announced a quarterly dividend of $0.16 per share, payable on September 1, 2024. It pays an annual dividend of $0.63 per share, which translates to a yield of 1.79% at the current share price. EQT offers an attractive proposition for income-oriented investors seeking exposure to the energy sector. Also, it has a four-year average dividend yield of 0.85% and has grown its dividend payouts at a CAGR of 41.8% over the past five years.
Despite industry struggles, EQT reported profitable second-quarter results. During the quarter that ended June 30, 2024, the company’s total sales volume increased 7.8% year-over-year to 508 billion cubic feet equivalent (Bcfe). A slight increase in the average realized price per millions of cubic feet equivalent (Mcfe) boosted EQT’s attributable net income by a robust 114.3% rise from the same period last year to $9.52 million.
In addition, the company’s earnings per share was $0.02, compared to the previous quarter’s $0.18 loss per share. In addition, EQT’s adjusted operating cash flows grew 18.8% from its year-ago value to $405.04 million.
Analysts expect EQT’s revenue for the third quarter (ending September 2024) to increase 31.3% year-over-year to $1.56 billion, and its EPS for the ongoing quarter is expected to grow 18.6% year-over-year to $0.36. Furthermore, the company has topped the consensus EPS estimates in each of the trailing four quarters.
While the stock has lost nearly 19% over the past nine months and more than 11% year-to-date, this dip presents a potential buying opportunity. EQT’s solid financials, coupled with its attractive dividend yield and growth potential, make it a compelling choice for investors looking to capitalize on the natural gas sector.
Stock to Sell:
Cheniere Energy, Inc. (LNG)
Cheniere Energy, Inc. (LNG) is the leading producer and exporter of liquefied natural gas in the United States. It provides a clean, secure, and affordable solution to the increasing global demand for natural gas. As a full-service LNG provider, Cheniere manages everything from gas procurement and transportation to liquefaction, vessel chartering, and LNG delivery.
The company is due to reveal its fiscal 2024 second-quarter earnings on August 8, and the outlook isn't promising. Revenue is forecasted to dip by 13.5% year-over-year to $3.55 billion. Meanwhile, its EPS is anticipated to plummet by 70.4% from the previous year to $1.66.
This downward trend is expected to continue throughout the fiscal year ending December 2024; Cheniere Energy’s revenue and EPS are expected to decrease by 21.3% and 80.3% year-over-year to $16.05 billion and $8.04, respectively.
Further, the financial strain is reflected in the company's performance in the first quarter that ended March 31, 2024. LNG’s total revenues decreased 41.8% year-over-year to $4.25 billion, and its income from operations fell 85.6% from the prior year’s quarter to $1.15 billion.
Moreover, LNG’s net income and net income per share attributable to common stockholders came in at $502 million and $2.13, down 90.8% and 90.4%, respectively. Its consolidated adjusted EBITDA decreased 50.7% year-over-year to $1.77 billion.
Despite these deteriorating financial metrics, LNG’s Board of Directors approved an additional $4 billion in share repurchase authorization through 2027. It further announced a plan to increase its quarterly dividend by approximately 15% to $2.00 per common share annualized, commencing with the third quarter of 2024.
On June 17, the company announced a quarterly dividend of $0.435 per share, payable to its shareholders on August 16, 2024. LNG pays an annual dividend of $1.74, which translates to a yield of 0.99% at the current share price. It has a four-year average dividend yield of 0.57% and a payout ratio of 8.3%.
Shares of LNG have gained over 4% over the past six months and nearly 3% year-to-date, but these modest gains do little to counteract the company's broader financial challenges. The current outlook suggests that the risks outweigh the potential rewards, making LNG a less attractive investment option.
