Shares of Cheniere Energy Inc. (NYSEAMERICAN: LNG) have been a proxy for liquified natural gas (hence the LNG ticker) for years. If the team at Merrill Lynch is right, Cheniere has more upside ahead. What stands out about this bullish call is that it may not have been bullish enough to entice new investors.

Cheniere owns the Corpus Christi liquefaction and pipeline business and owns Cheniere Marketing. It is also a partial owner of the Sabine Pass liquefaction facility and Cheniere Creole Trail pipeline. While all of Cheniere’s assets are located in the United States, the existing contracts are internationally dominant. In 2017, international customers generated 60% of revenues, with Japan, Ireland and South Korea representing roughly 70% of the international customer base.

In Thursday’s research reports, Cheniere was started as Buy with a $60 price objective at Merrill Lynch. That represents about 12% in implied upside, but there is still hope for more. Cheniere is said to be considering building two new trains on the existing facilities, one at Corpus Christi and one at Sabine Pass. The report also assigns no premium in the base case for its Cheniere Energy Partners L.P. Holdings LLC (NYSEAMERICAN: CQH) stake.

One additional point of interest about this Merrill Lynch analyst call is that it is actually under the Thomson Reuters consensus target price of $64.09.

There is already a positive market backdrop, and there is said to be significant marketing optionality on excess capacity. Merrill Lynch sees Cheniere having an ability to expand its existing facilities, and that may provide meaningful cost advantages to the firm ahead. The report said:

Thanks to its ability to expand existing facilities rather than having to develop greenfield projects, LNG is one of the lowest-cost providers of incremental liquefaction capacity globally, which puts the company in a strong position to underwrite future capacity. Cheniere finalized the price revision of Stage 2 of the Corpus Christi Liquefaction Facility (CC Train 3 with 4.5 mtpa of capacity is essentially ‘shovel ready’) with Bechtel last December at an unlevered cost of $524/ton (or ~$600 Mn total). According to the company, this makes the project, which is fully permitted and with a Final Investment Decision (FID) expected to be issued in 1H18, the cheapest liquefaction train globally vs. other projects likely in the $700-$1,000/ton range.

While spreads in liquified natural gas markets are positive again, there are some risks ahead. That spread is said to be especially important for Cheniere’s marketing position and global dynamics of liquified natural gas have put the U.S. spread at risk.

Merrill Lynch sees Cheniere as a leader in U.S. liquified natural gas export efforts. It has been a beneficiary from its favorable first-mover position, with clear cost of capital advantage and also an attractive track record that supports further off-take agreements.

Another potential benefit is coming from consolidation, with the past and unsuccessful roll-up not getting approval. Merrill Lynch’s investment rationale said:

We are Buy rated on share seeing clear path to COD on SP-5 and CC 1&2, as well high likelihood of FID for CC-3 this and SP-6 next year, with further expansions either organically at CC site or through M&A. We expect share to appreciate as execution risk still priced in fades away as management continues to execute on story, with further upside should any additional investment opportunities materialize.

Shares of Cheniere Energy were down midday, despite the upgrade, after having been positive early Thursday morning. That may be tied to a natural gas weakness and a lack of interest in many key energy trades at this time. Its shares were down 1.8% at $52.69 in noon-hour trading. The stock has a 52-week trading range of $40.36 to $60.22.

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