Natural gas (NGV24) and liquefied natural gas (LNG) are experiencing a massive surge in demand, fueled by the rapid rise of artificial intelligence (AI) technology. This AI boom is igniting an unprecedented expansion of global data centers, which rely on consistent 24/7 power generation - and that’s causing a spike in electricity demand.
Brokerage firms, including Goldman Sachs, are forecasting a significant increase in natural gas consumption driven by the data center revolution. While the planned restart of Three Mile Island to fuel AI power demand grabbed headlines recently, for massive energy markets like China - the world’s largest LNG importer - the need for “bridge fuels” like LNG is especially critical as the country intensifies its digital transformation and embraces AI advancements.
With data center capacity continuing to expand, LNG is quickly becoming the energy source of choice across Asia. Given its ability to provide reliable, around-the-clock power, LNG is replacing coal in many Asian economies that are aiming to reduce carbon emissions. In fact, Shell (SHEL), the world's leading LNG trader, projects a sharp 50% increase in global LNG demand by 2040, primarily driven by heightened demand in Asia, where China is making a strategic shift from coal to gas.
Against this backdrop, dividend-paying energy stock TotalEnergies SE (TTE) stands out as a key player, driven by its latest strategy to ramp up long-term LNG sales in China. By tapping into the nation’s growing appetite for LNG, this France-based energy company could be an ideal candidate for investors eager to harness the future of LNG’s booming market.
About TotalEnergies Stock
Europe’s TotalEnergies SE (TTE) is a formidable force in the global energy sector, engaged in the production and marketing of a wide array of energy sources, including oil (CLX24), biofuels, natural gas, and renewables. With a workforce of over 100,000 employees spread across 120 countries, the company places a strong emphasis on sustainability in all its endeavors.
As the world’s third-largest player in the LNG market, TotalEnergies commands an impressive global portfolio of 44 million tons per year (Mt/y) as of 2023, supported by its integrated approach across the entire LNG value chain, which encompasses production, transportation, regasification, and trading.
Committed to increasing the share of natural gas in its sales mix to nearly 50% by 2030, TotalEnergies aims to lower carbon and methane emissions while fostering the transition from coal to natural gas in partnership with local communities. Valued at a market cap of around $157.4 billion, the U.S.-traded shares of this LNG giant have gained marginally over the past year, but are slightly negative on a YTD basis.
TotalEnergies has a shareholder return policy for 2024 targeting greater than 40% of cash flow, which means the stock is currently yielding about 5% at current levels. The total shareholder payout in 2023 represented 46% of cash flows.
Plus, in its Q2 earnings release, TTE authorized a share buyback of up to $2 billion. This makes TotalEnergies a noteworthy player for income-focused investors.
Beyond its dedication to shareholders, TTE stock also appears to be a bargain. Priced at 7.98 times forward earnings and 5 times cash flow, the stock is trading at a notable discount to energy sector medians.
A Closer Look At TTE’s Q2 Performance
TotalEnergies released its Q2 earnings results on July 25. While the company’s adjusted EPS of $1.98 fell short of Wall Street’s forecast, its total revenue of $49.1 billion managed to exceed projections by nearly $3 billion.
During the first half of fiscal 2024, the company made significant strides in its balanced transition strategy. Within the Oil & Gas segment, the company greenlit several key upstream projects, paving the way for a targeted 2-3% annual growth in production and enhancing underlying cash flow.
In the Integrated Power segment, TotalEnergies strengthened its portfolio through strategic acquisitions in flexible assets across Texas, the UK, and Germany, enhancing its ability to maximize value from renewable sources.
Additionally, to enhance its financial standing, TotalEnergies took a strategic step by issuing approximately $4.3 billion in conventional senior bonds in the U.S. market, featuring a notable average maturity of 27 years, demonstrating its commitment to maintaining flexibility in financing while prioritizing long-term growth.
For fiscal 2024, the company confirmed a net investment guidance range of $17 billion to $18 billion, with $5 billion earmarked for Integrated Power initiatives.
Analysts tracking TotalEnergies expect the company’s profit to dip by 10.4% in fiscal 2024 before rising 4.2% to $8.77 per share in fiscal 2025.
TTE’s LNG Deal With CNOOC
TTE stock jumped more than 1% on Sept. 19 after TotalEnergies announced a pivotal 5-year extension of its sales and purchase agreement with China National Offshore Oil Corporation (CNOOC), ensuring the delivery of around 1.25 million tons of LNG annually to China until 2034.
This strategic agreement not only solidifies TTE's presence in one of the world’s fastest-growing LNG markets, but also positions the company to play a crucial role in China’s energy transition. As natural gas becomes increasingly vital in bridging the renewable energy gap and reducing emissions by displacing coal in electricity generation, TotalEnergies is poised to capitalize on this trend.
Gregory Joffroy, Senior Vice President of LNG at TotalEnergies, emphasized the importance of this partnership, stating that it enables the company to secure long-term sales in Asia while mitigating exposure to the volatile spot market for gas prices.
What Do Analysts Expect for TotalEnergies Stock?
Overall, Wall Street is optimistic about TTE stock, with a consensus “Moderate Buy” rating. Out of the 13 analysts offering recommendations, six advise a “Strong Buy,” one suggests a “Moderate Buy,” and six maintain a “Hold.”
The mean price target for TTE is $77.75, indicating expected upside potential of around 16.6% from current levels.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
