I am bullish on Tellurian (TELL) because Wall Street’s bullishness on the stock, its strong growth potential and balance sheet, and significant share price upside potential make it look like it might be an appealing time to buy the stock. (See Analysts’ Top Stocks on TipRanks)
A Texas-based natural gas company, Tellurian focuses on developing natural gas infrastructure in a responsible and efficient way. The company’s mission is to provide consumers with more sustainable and reliable energy. It is also involved in advancing renewable energy alternatives.
Strengths
Tellurian expects to become the first integrated gas pure play that is based on cost-competitive resources and infrastructure in the United States. The company has made a binding agreement with Shell (RDS.A), bringing into its fold the world’s largest LNG portfolio, and the biggest buyer of U.S. LNG.
The company has started site preparation and commenced the debt financing process for its subsidiary Driftwood. The company’s upstream processes use “green completions” to minimize leakage of methane gas and prevent flaring.
Tellurian does not have any debt, and it expects to double its pro-forma revenue rate from the end of 2020 to the end of 2021.
Recent Results
In its second quarter report of 2021, Tellurian showed revenue of approximately $5.6 million, which was generated from sales of natural gas. The company also reported $111.9 million in cash and cash equivalents, and a debt-free balance sheet.
That said, Tellurian reported a net loss of $30.6 million, equating to a basic and diluted loss of $0.08 per share for the quarter ended June 30, 2021.
In the second quarter, the company also entered into 10-year purchase agreements with Gunvor Singapore, and Vitol, for a total of 6 million tonnes per annum (mtpa).
Based on its existing levels of production, and expected results from new wells that are to be drilled, the company estimates the exit rate for gross natural gas production will be 95 million cubic feet per day by the end of Fiscal Year 2021.
Valuation Metrics
Tellurian’s stock is very difficult to value right now given that it is still running up significant losses. That said, in 2022 the company is expected to rapidly increase its profitability.
It currently trades at 4.9 times 2022 EV/EBITDA and 7.8 times 2022 normalized net income, both of which appear to be quite reasonable valuations.
Wall Street’s Take
From Wall Street analysts, Tellurian earns a Moderate Buy consensus rating based on one Buy rating and one Hold rating in the past three months. Additionally, the average Tellurian price target of $6.25 implies 80.6% upside potential.
Summary and Conclusion
Tellurian is currently enjoying some strong growth momentum, has a great balance sheet, and enjoys a generally bullish perspective from Wall Street analysts. Furthermore, the stock could see massive upside over the next year if the consensus price target is achieved.
Perhaps best of all, if the company can meet analyst expectations for 2022, the shares appear to be trading at very reasonable levels.
That said, the stock remains speculative given that the company is not yet profitable, and the energy industry is highly competitive with significant volatility in pricing.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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