The recent oil production cuts announced by the major oil-producing countries could trigger an uptick in crude oil prices. Moreover, increased demand from China’s economy could also propel the prices higher. Although the overall energy sector is anticipated to grow in the foreseeable future, Tellurian Inc. (TELL) seems to be going downhill.
The stock has plunged 75.3% over the past year and 23.7% over the past three months to close the last trading session at $1.42.
The stock is anticipated to plunge further, given its weak fundamentals and the current market scenario.
TELL engages in the natural gas business worldwide. The company is developing a portfolio of natural gas production, liquefied natural gas (LNG) marketing, and infrastructure assets that includes an approximately 27.6 million tons per annum LNG export facility and an associated pipeline.
TELL plans to operate in various aspects of the natural gas and oil business and anticipates to face an intense competition. Depending on the area of operations, competition may come from independent, large, already-established technology-driven companies.
The superior resources that some of these competitors have available for deployment could allow them to compete successfully against TELL, which could have a material adverse effect on TELL’s business, results of operations, financial condition, liquidity, and prospects.
TELL believes the market price of their common stock to be highly volatile and expect it to continue to be volatile for the foreseeable future. It has a five-year monthly beta of 2.31, indicating significant volatility.
TELL anticipates adverse events could trigger a significant decline in the trading price of the common stock, which includes failure to obtain necessary permits, unfavorable changes in commodity prices, adverse regulatory developments, litigation, and failures to advance the Driftwood Project on the terms or within the time periods anticipated.
Here are the factors that could influence TELL’s performance in the upcoming months:
Disappointing Financials
For the fiscal year that ended on December 31, 2022, TELL’s total operating costs and expenses stood at $409.70 million, up 122.7% year-over-year. Its loss from operation stood at $17.77 million. Moreover, TELL reported a net loss of $49.81 million, and the net loss per share came in at $0.09 per share for the same year.
TELL’s total current liabilities and total long-term liabilities stood at $297.54 million and $456.60 million, respectively, as of December 31, 2022, compared to $88.80 million and $114.71 million, as of December 31, 2021.
Unfavorable Bottom Line Estimates
For the fiscal third quarter (ending September 2023), TELL’s EPS is expected to decline 150% year-over-year to a negative $0.08.
For the fiscal year ending December 2023, its EPS is expected to decline 180.6% year-over-year to negative $0.25. Street expects its revenue for the same quarter to come in at $357.84 million, down 8.7% year-over-year.
Stretched Valuation
In terms of forward EV/Sales, TELL is trading at 2.58x, 45.8% higher than the industry average of 1.77x. Its forward price/sales multiple of 2.24 is 77.8% higher than the 1.26 industry average.
Low Profitability
TELL’s trailing-12-month gross profit margin and EBITDA margin of 39.19% and 6.78% are 13.7% and 80.1% lower than the 45.41% and 34.14% industry averages, respectively. Its trailing-12-month ROCE, ROTA, and ROTC of negative 9.13%, 3.49%, and 1.24% compares to the 21.44%, 7.09%, and 9.91% industry averages, respectively.
POWR Ratings Reflect Bleak Outlook
TELL has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. It has a D for Value, in sync with its stretched valuation. Its D grade for Sentiment is in sync with its unfavorable bottom-line estimates.
Also, the F grade for Quality is consistent with its lower-than-industry profitability.
Within the 91-stock Energy - Oil & Gas industry, it is ranked #90.
To see the other ratings of TELL for Growth, Momentum, and Stability, click here.
View all the top stocks in the Energy - Oil & Gas industry here.
Bottom Line
TELL demonstrated a disappointing performance in the last quarter of 2022. The stock is trading below its 50-day and 200-day moving averages of $1.47 and $2.57, respectively, indicating a downtrend. Furthermore, given its mounting losses, extremely low profitability, and stretched valuation, it could be wise to avoid this energy stock now.
Stocks to Consider Instead of Tellurian Inc. (TELL)
Unfortunately, the odds of TELL outperforming in the weeks and months ahead are greatly compromised. However, there are many good stocks in the Energy - Oil & Gas industry with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks instead:
Marathon Petroleum Corporation (MPC)
Valero Energy Corporation (VLO)
PrimeEnergy Resources Corporation (PNRG)
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TELL shares fell $0.04 (-2.82%) in premarket trading Monday. Year-to-date, TELL has declined -15.48%, versus a 7.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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