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Cheniere Energy Moves Up After Carl Icahn Increases Stake

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Shares of Cheniere Energy Inc.LNG rose almost 3% in after-hours trading on the NYSE yesterday, on the announcement that activist investor, Carl Icahn, has boosted his stake in the company.

The billionaire investor now has 22.7 million shares of Cheniere Energy which represents a 9.6% stake. This is higher than his previous holding of 8.2% stake in the company declared this August.

So what made Carl Icahn raise his share holding in the natural gas exporter that has seen its money being eroded for more than 20 years at a stretch? Also, which fundamentals of the company led the activist investor to believe that Cheniere Energy will grow?

The answer is that although Cheniere Energy is not yet widely known, Carl Icahn is hopeful of this Houston-based firm becoming the first company to export huge amounts of natural gas from the U.S. shale formations by the end of 2015. Cheniere Energy also has contracts from natural gas buyers for a long period of 20 years. Its first cargo should be ready for shipping by the end of this year. Carl Icahn is also encouraged by the company's plan to construct its second export terminal at Corpus Christi, TX. The huge export facility will likely cost around $16 billion.

In August, Carl Icahn said that he is willing to discuss issues with management and the board of directors of Cheniere Energy to sort out the company's operations, capital spending, aggressive executive compensations and financing. Management might even be compelled by the iconic investor to cut the huge pay packages of its executives. In 2013, Charif Souki, the chief executive of Cheniere Energy drew $142 million as compensation. This made Charif one of the highest paid executives in the country.

We should mention here that Carl Icahn has already bought significant stake in companies like Chesapeake Energy Corp. CHK and Transocean Ltd. RIG . There too he imposed significant changes on management and the boards.

If history has a habit of repeating itself, we might see the same happening at Cheniere Energy. On a positive note, these changes might help the company to grow in the coming years.

Currently, Cheniere Energy carries a Zacks Rank #4 (Sell), implying that the stock will underperform the broader U.S. equity market over the next one to three months.

Meanwhile, a better-ranked player in the energy sector is Seadrill Partners LLC SDLP . The stock carries a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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