Sep 30, 2022
Energy prices have soared in 2022. And what happened in Europe earlier this week could add fuel to the fire.
On Monday, Denmark and Sweden reported that there were gas leaks in the Nord Stream 1 and 2 pipelines. The Nord Stream pipeline system is used to transport Russian natural gas to Europe.
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Swedish seismologists said two underwater explosions were detected. Officials suggest that the damage could have been done on purpose.
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“It's hard to imagine that these are coincidences. We can't rule out sabotage,” Denmark's prime minister Mette Frederiksen said on Tuesday.
NATO called the incident the result of “deliberate, reckless, and irresponsible acts of sabotage.”
This could escalate the tension in the region.
“Any deliberate disruption of active European energy infrastructure is unacceptable & will lead to the strongest possible response,” said Ursula von der Leyen, president of the European Commission in a tweet.
The incident also led to a rise in the price of natural gas. The United States Natural Gas Fund (UNG) popped 2.9% on Wednesday.
While natural gas prices pulled back on Thursday, UNG is still up around 80% year-to-date.
Moreover, the news brought renewed investor attention to natural gas companies. Here’s a look at two that Wall Street finds particularly attractive.
Cheniere Energy (LNG)
Given how much the price of natural gas has gone up in 2022, it shouldn’t come as a surprise that liquefied natural gas producer and exporter Cheniere Energy is firing on all cylinders.
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The stock surged 6.8% on Wednesday and is up 59% year to date.
In Q2, Cheniere Energy generated $8.0 billion of revenue, marking a 165% increase year over year.
Earlier this month, management announced a “20/20 Vision” long-term capital allocation plan. The company expects to generate more than $20 billion of available cash through 2026 and achieve a run-rate distributable cash flow of over $20 per share.
It also gave shareholders a “pay raise” by increasing the quarterly dividend payment by about 20% to 39.5 cents per share.
Stifel analyst Benjamin Nolan recently reiterated a ‘buy’ rating on Cheniere Energy while raising his price target from $159 to $201. Considering that shares trade at $162 today, the new price target implies a potential upside of 24%.
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Chesapeake Energy (CHK)
Chesapeake Energy is an exploration and production company headquartered in Oklahoma City. It has operations in several prolific basins, including Marcellus, Eagle Ford, and Haynesville.
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The company’s net production rate in Q2 was approximately 4,125 million cubic feet of natural gas equivalent (MMcfe) per day, of which 91% was natural gas. So it is solidly positioned if natural gas prices were to continue trending up.
Chesapeake’s financials have already shown great improvements. In Q2, the company earned $494 million in adjusted free cash flow, up 69% from the $292 million generated in the year-ago period.
The company also raised its base quarterly dividend rate by 20% to $0.55 per share. It’s paying a variable dividend on top of the base dividend, too — the total payout was $2.32 per share in the latest quarterly distribution.
Chesapeake shares rose 3.9% on Wednesday and is up 39% in 2022. Goldman Sachs analyst Umang Choudhary sees further upside on the horizon.
Choudhary has a ‘buy’ rating on Chesapeake shares and recently raised his price target to $117 — roughly 27% above where the stock sits today.
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Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
