Tellurian Inc. (TELL) is a natural gas company focused mainly on developing liquefied natural gas (LNG) production on the United States Gulf Coast and engages in building up infrastructure assets.

U.S. natural gas prices hit a 14-year high this week. The Henry Hub benchmark temporarily topped $10 per million British thermal units. However, as U.S. natural gas exports to Europe have increased, gas prices in the country have become much more vulnerable to various events. The stock has been rallying, driven by the industry tailwinds.

The stock has gained 51.6% over the past year and 43.2% year-to-date to close its last trading session at $4.41. It is trading higher than its 50-Day Moving Average of $3.56 and 200-Day Moving Average of $3.80.

Here are the factors that could affect TELL’s performance in the near term:

Haynesville Basin Acquisition

On August 18, TELL announced that its subsidiary Tellurian Production LLC (TPC) closed the acquisition of certain assets in Haynesville from privately held EnSight IV Energy Partners, LLC and EnSight Haynesville Partners, LLC for a cash consideration of $125.50 million.

With the closing of the acquisition, TPC is expected to have current production of approximately 150 million cubic feet/day (MMcfd) from assets in the Haynesville basin. However, it might take some time to realize.

Stretched Valuations

In terms of its forward EV/Sales, TELL is trading at 6.27x, 226.3% higher than the industry average of 1.92x. The stock’s forward EV/EBITDA multiple of 30.60 is 421.1% higher than the industry average of 5.87. In terms of its forward Price/Sales, it is trading at 6.82x, 369.5% higher than the industry average of 1.45x.

Bleak Profit Margins

TELL’s trailing-12-month gross profit margin of 11.01% is 72.4% lower than the industry average of 39.92%. The stock’s trailing-12-month EBIT margin and net income margin of a negative 40.14% and 50.43% are significantly lower than their respective industry averages of 15.13% and 9.90%.

Its trailing-12-month ROE, ROTC, and ROA of a negative 27.49%, 8.02%, and 9.23% compare to their respective industry averages of 15.53%, 6.68%, and 5.86%.

POWR Ratings Reflect A Bleak Outlook

TELL’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

TELL has a Stability grade of F in sync with its five-year monthly beta of 2.21. The stock also has an F grade for Value and Quality, consistent with its high valuations and negative profitability margins.

TELL is ranked last in the 97-stock Energy – Oil & Gas industry.

Click here to see the additional POWR Ratings for TELL (Growth, Momentum, and Sentiment).

View all the top stocks in the Energy – Oil & Gas industry here.

Bottom Line

TELL has gained significant momentum this year amid the rallying oil and gas prices. However, its negative ROE is concerning. Moreover, with analysts expecting the company’s EPS to be negative $0.07 for the current year (fiscal 2022), I think the stock might be best avoided now.

How Does Tellurian Inc. (TELL) Stack Up Against its Peers?

While TELL has an overall POWR Rating of F, one might consider looking at its industry peers, Whitecap Resources Inc. (SPGYF) and PrimeEnergy Resources Corporation (PNRG), which have an overall A (Strong Buy) rating, and Birchcliff Energy Ltd. (BIREF) and Marathon Petroleum Corporation (MPC), which have an overall B (Buy) rating.

TELL shares were trading at $4.57 per share on Friday morning, up $0.16 (+3.63%). Year-to-date, TELL has gained 48.38%, versus a -11.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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