Seth Klarman (Trades, Portfolio), portfolio manager of The Baupost Group, trimmed 21.97% of his stake in Cheniere Energy Inc. (LNG, Financial) Jan. 9 likely due to a weak financial outlook. As of the transaction, Klarman owns 21,726,340 shares of the midstream energy company, about 9.25% of total shares outstanding.
The portfolio manager at Baupost Group sold 6,116,617 shares of Cheniere Energy at $41.43 per share, representing about 21.97% of his stake. The stock trades at $43.50, and Klarman’s loss since he initially bought Cheniere shares is about 25% based on GuruFocus estimates.
Houston-based Cheniere Energy currently has a weak financial strength rank of 3, implying high potential for financial distress. The company’s cash-to-debt ratio of 0.05 suggests that Cheniere could not pay off its debt with the cash on hand. Additionally, the company’s interest coverage is a severely low 0.1 and Cheniere’s Altman Z-score of -0.12 indicates severe distress.
Since 2013, the midstream energy company issued over 13 billion in long-term debt. On Dec. 5, 2016, the company issued and sold $1.5 billion in senior secured notes to Goldman Sachs Group Inc. (GS, Financial) maturing in 2025. Cheniere Energy also closed a $350 million “working capital facility agreement” as the borrower during December 2016.
Since 2014, Cheniere Energy had three years of operating loss, which likely contributed to operating margins underperforming 94% of global midstream energy companies. The company reported a net loss of $100.4 million during third-quarter 2016, or a diluted loss per share of 44 cents. For the nine months ending Sept. 30, 2016, the company reported net losses of $719.7 million, about $30 million higher than the net loss for the nine months ending Sept. 30, 2015.
As of Jan. 10, Cheniere Energy has a profitability rank of 2, suggesting little or no profitability. Based on its “Predictability Chart,” the company gets a predictability rank of one star as its revenue per share and EBITDA per share have consistently declined during the past five years.
As the company offers low value potential, several gurus, including Klarman, have trimmed positions in Cheniere Energy. Steve Mandel (Trades, Portfolio), John Griffin (Trades, Portfolio) and Jim Simons (Trades, Portfolio) axed 16.63%, 57.06% and 100.00% of their stake in Cheniere Energy during third-quarter 2016.
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Disclosure: The author has no position in the stocks mentioned in this article.
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