The Energy Department has issued a second permit to export liquefied natural gas (LNG) from the United States. The license, awarded to Freeport LNG Expansion and FLNG Liquefaction, will result in overseas shipping of 1.4 billion cubic feet of gas every day from a terminal on the Texas Gulf Coast. This is only the second such permit to export U.S. LNG. While exports by Freeport are not likely to start before 2017, the market has already started contemplating more such licences being issued by the department going forward.
Chicago Bridge’s prospects improved
For once, the move is likely to help engineering and construction firms such as Chicago Bridge & Iron Company N.V. (NYSE:CBI). The company is an integrated engineering, procurement, and construction (EPC) services provider with a focus on the energy, petrochemical, and natural resource industries. The company recorded revenue of $2.3 billion during the first quarter of 2013, representing an 87% jump. While nearly 60% of this came from an acquisition, the remaining amount was primarily due to increased construction activities related to LNG mechanical erection and gas processing projects.
The company has been winning new projects internationally in this area, including engineering services for an offshore LNG platform in the Norwegian Sea worth approximately $180 million, and scope increases on its refinery project in Colombia worth nearly $175 million. Chicago Bridge & Iron Company N.V. (NYSE:CBI)’s prospects are improved by the fact that it has already worked on the front-end engineering and design for the Texas Gulf Coast plant. In fact, it would be a surprise if the company fails to win additional contract work at the plant. Its shares have advanced 23% over the last month but are still available at a forward price to earnings ratio of 12.4.
Oil and gas is the biggest segment for this company with revenue of $9.5 billion, amounting to 34.5% of global revenue in 2012. Fluor Corporation (NEW) (NYSE:FLR) is currently trading at a price to earnings ratio of only 14.2 times projected earnings for 2014, and has a debt equity ratio of 0.15.
Earlier this month, Deutsche Bank initiated coverage on the stock with a Buy rating and a price target of $84, indicating potential upside of 27%.
Beyond construction plays
Another player set to benefit from the relaxed norms is Teekay LNG Partners L.P. (NYSE:TGP), which offers international transportation services for LNG in addition to liquefied petroleum gas (LPG ) and crude oil. The Energy Department’s stance indicates that more such licenses will be rolled out, thus increasing business volumes for transporters like Teekay LNG Partners L.P. (NYSE:TGP).
As of Dec. 31, 2012, the company’s fleet consisted of 27 LNG carriers. With a young fleet that has an average age of six years as of year end, the company was able to boost its margins from 25.6% in 2011 to 35.5% last year. This improvement in margins is substantial, and even though margins simply cannot keep going up, current levels are good enough to be maintained.
The company has a debt equity ratio of 1.69, which is not very high for this capital intensive business and will support margins to stay at healthy levels. Despite its vastly improved results and margins from previous year, the stock has gained only 18% over the last 12 months but offers an excellent dividend yield in excess of 6%.
Foolish bottom line
Even though the Energy Department said it would move cautiously on additional approvals, oil and gas industry groups are expected to lobby hard to open the door a bit more. The positives such as job creation and reduction of the U.S. trade deficit which played in favor of Freeport will likely bring more export volumes.
The article Stocks Set to Benefit From LNG Exports originally appeared on Fool.com is written by Jacob Wolinsky.
Jacob Wolinsky has no position in any stocks mentioned. The Motley Fool owns shares of Fluor. Jacob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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