The Inflation Trade 'Isn't Dead Yet': This Analyst Sees 23% Upside On This Energy Play

The Energy Select Sector SPDR Fund XLE is up 31.09% year-to-date, alongside major energy names like Exxon Mobil Corp XOM and Chevron Corporation CVX — both having a banner year.

But it was Cheniere Energy Inc. LNG that "saw a huge bump in revenue in 2021, bringing in $17.53 billion,” analyst Gianni Di Poce wrote in his weekly Benzinga Pro Insider Report.

“This was almost double what they did in 2020, when they brought in $9.29 billion," he said. "It’s even more impressive when considering the economic principle of diminishing returns to scale.”

The Call: Di Poce notes that Cheniere's technical situation is strong as a broadening wedge pattern is formed.

"These are some of my favorite momentum patterns to trade, since not many others seem to use it,” the analyst wrote.
 

Action Plan: 23% return

“I am bullish on LNG so long as the stock remains above $132.00-$133.00,” Di Poce added. “Upside target $180.00-$182.00.”

Despite strong revenue growth, Cheniere is struggling with its profitability — its Book Value is negative, but its price-to-sales is 1.80.

Earlier in the month, Cheniere CFO Zach Davis said that the company has already sold most of its expected production for the year, and they may need to expand operations at its Corpus Christi plant to meet demand.

Other Analyst Ratings: In the last three months, seven analysts including Mizuho, and Raymond James have offered 12-month price targets for Cheniere. The company has an average price target of $177.29 with a high of $185.00 and a low of $167.00.

“After last week’s strong payroll numbers, don’t be surprised to see the Fed be even more aggressive in combating inflation via rate hikes,” Di Poce wrote in his report. “In other words, it’s unlikely the inflation trade is dead yet. Stocks like LNG would stand to benefit if and when it reignites.”

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