Cheniere Energy Inc. (NYSE: LNG) has seen its stock rise over 15% in the past three months, and the company’s CEO, Jack Fusco, expects this upward trend to continue, thanks to the US Federal Reserve’s recent rate cut—the first in four years.
As a capital-intensive business involved in building and operating liquefied natural gas (LNG) terminals, Cheniere relies heavily on debt financing, which benefits significantly from lower interest rates.
With a near 1.0% dividend yield, Cheniere’s stock becomes even more attractive to investors seeking healthy total returns, particularly in a rate-cut environment.
Cheniere stock poised to benefit from Fed rate cut
The US central bank made an aggressive move to ease its monetary policy, lowering its key interest rate by 50 basis points.
Federal Reserve Chair Jerome Powell also hinted at another 50-basis point cut before the end of 2024.
This is particularly good news for Cheniere Energy, which has invested $45 billion in two major LNG sites, with $25 billion financed through debt.
Lower rates reduce the cost of servicing this debt, providing financial relief and supporting future growth, Fusco explained at the Gastech Conference.
Additionally, rate cuts are typically aimed at stimulating economic activity, which often leads to higher energy demand, including natural gas.
This macroeconomic factor further strengthens the outlook for Cheniere in a lower interest rate environment.
Jefferies sees upside in LNG shares to $220
Cheniere’s stock has outperformed in recent months, buoyed by a sharp decline in natural gas prices, which dropped from $4.18 to under $2.00 in late August.
However, Fusco believes that the company’s growth story is just beginning.
He pointed out that $1.5 trillion is being invested globally in natural gas infrastructure, with more than half of that already under construction.
This massive global investment underscores the long-term potential for LNG demand.
Wall Street shares Fusco’s optimism. Jefferies analyst Sam Burwell recently reiterated his “buy” rating on Cheniere Energy, setting a price target of $220 over the next 12 months—a 21% upside from current levels.
Despite missing revenue estimates in the last quarter, Cheniere’s adjusted earnings per share outperformed expectations, further boosting investor confidence.
Cheniere’s commitment to repurchasing its shares to increase shareholder value is another factor driving bullish sentiment.
This, combined with the company’s solid earnings performance and future potential, reinforces the positive outlook for the stock.
With the Federal Reserve poised to continue lowering interest rates and global LNG demand set to rise, Cheniere Energy appears well-positioned for future growth, making it a compelling choice for investors seeking exposure to the energy sector in a favorable rate-cut environment.
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