KNTK options available & post-expiry trade follow-up +4

09:17 23-Feb-23

Cheniere has initiated the application process to expand its LNG capabilities by two thirds, to almost 50M tons per year.  Cheniere is by far the largest American LNG company, and received former coverage as the first.  I see this as further evidence of an ongoing tight natural gas market despite current conditions, and a positive for Kinetik.  However, given the regulatory environment and development time, I think it is even more positive for New Fortress, so long as that company can stay on track with its plans.

On the electric side of the energy equation, ChargePoint has announced a charging and integration agreement with Fisker.  The number of vehicles is small; so I don't see this as a big deal.  It is another confirmation point on why service revenue has lagged before now, though.  CHPT has recouped a couple percent of recent losses this morning, and I am still only interested in the stock below$ 10.

There is also more affirmation of IoT growth in the form of a new Telus smart home collaboration with AWS.

Last and least is eMagin scheduling its official earnings report for the morning of March 9th.  No analysts still cover the company and, while some production yield issues remain, it has become increasingly clear that the future of microdisplays is microLED, as espoused by Vuzix.  That company's support of Android 11 in its latest products is an important step, even though it is still a version behind.  Both stocks have given back most of their new year rebound, which I don't find especially tempting.

This note should have also included the announcement of Freeport LNG's regulatory clearance for trains 1 & 2.  Clearance for the third train is expected in the "next several weeks" and it sounds like full operation will take until around May or June.  Sorry, I got distracted by Ebix, but this give me opportunity to note that the trading in KNTK has retreated back below $28, which is more in line with my original expectations.  The fact that the options spreads are narrow and difficult only reinforces my view on the opportunity, though.

On 2/22/23 09:27, Esekla wrote:

PPL has priced its 5-year notes at 2.875%.  That's not very impressive for convertible debt, and I think it's a sign of the market's shift toward my higher for longer viewpoint.  We'll see how it reacts to today's Fed minutes.

Pre-market action affirms my read from yesterday, and even shows some strength in KNTK.  Perhaps I shouldn't be surprised, since such yield is the best defense for investors who are unwilling or unable to be very nimble, and Canadian and European currencies have given up around a penny in the past week.  That validates the caveat provided with the Telus earnings report, and my warnings on European bellwethers, but I will continue to own positions in TU.  I also continue to see the mostly complete operations of Kinetik as a competitive advantage, since there is no sign at all of Republicans getting their acts together enough to reverse the increased difficulty for even planning new pipelines, which is hurting operators not plugged into Kinetik distribution.

Similarly, this mornings new of employee back to the office backlash at Amazon supports my views on LUMN, as does the increasing edge demand reported by Nokia.  I continue to see NOK as fairly priced, but worth watching along with the currencies.  LUMN is undervalued, and it will be interesting to see what price AT&T can get for its cybersecurity unit, which was purchased 4.5 years ago for $600M.  A decent valuation might open the door for Lumen's new management to further wreck the company with a sale of Black Lotus.

Finally, Polestar has announced a new Q&A platform to be available starting with its 4Q22 earnings report, which is scheduled for the morning of March 2nd.  The lone analyst tracking the company predicts a loss of 13 cents per share, with no revenue estimate.  I see management controlling the things it can, and the status of tax rebates is more questionable than it should be, due to the ever-present dysfunction in D.C.  That leads me a little less negative on PSNY at prices back down to almost $5 and still sporting a 67% rebate rate.  Consequently, I will report on at least the numbers in real time.

On 2/21/23 13:24, Esekla wrote:

Options trading is now available on KNTK shares.  I've been waiting on this event since I began coverage, and think it will be a long term positive for shares which will eventually help realize my $50 price target.  That said, my study indicates that the effect of options is somewhat different for high-yield stocks versus non-yielding high volume story stocks, and I do NOT expect any immediate rebound.  In fact, the opposite may be true since traders can swap shares for puts while maintaining a line on the dividend to the extent that premiums are available.

The next positive catalysts should be getting well past Wednesday's lockup expiration without further significant declines, followed by the promised quarterly dividend increase to almost 79 cents.  That should get us to around the $35 mark.  From there market realization of changing seasonality and demand for natural gas should drive longer term gains.  In the meantime, current Henry Hub pricing back down to $2.10 is obscuring medium to long term developments, which will need to be measured against peak Fed expectations.

I still see energy, along with a shift back toward utilities, as the place to be invested with geopolitical tensions persisting.  Walmart's warning for the year, which amounted to a 10% miss, reinforced inflation-fueled debt worries, but those are still well below pre-pandemic levels.  That actually furthers the Fed's goals, at least for the time being.  The utility call still does not include PPL, though, as the company is issuing up to $1b of convertible bonds which could result in about 4.8% dilution at the end of 2027, based on current stock pricing.  The same goes for Energy Recovery, which announced $9M in PX sales to Asia ahead of tomorrow's earnings report.  Nor does it include Vodafone, which continues efforts to sell itself off in pieces.  VOD recently got a bump from Liberty acquiring an almost 5% stake, but I would be more focused on the cessation of mandatory buybacks from convertible shares on March 15th.  TSMC delaying its European plans wouldn't help, as Intel's plans with it are faltering, which is no surprise to me.  I'll also continue to avoid mega-tech like GOOG, even though I expect little immediate impact from Section 230 opening arguments over the next two days.

Typical of bottom fishing sessions, the more interesting trading is in stocks that do not have any current news.  Though today's decline may look severe, taken in context, LUMN trade leads me to guess that the shares will close above $3.50 on Friday and put in the bottom I referenced.  I also reiterate my medium to long term interest in MRDB.  It probably still has a long wait for options trading, but could be a good candidate for the Momentum Mechanism (referenced in the first link above) when that does happen.  I'll also note that AMSC has declined in line with my warnings, which is interesting, but the danger of dilution remains an offsetting factor.