Headquartered in Hamilton, Bermuda, Golar LNG Limited (GLNG) designs, owns, and operates marine infrastructure that turns natural gas into LNG. The company operates through FLNG; Corporate and Other; and Shipping segments. Yesterday, GLNG released its financial results for the third quarter of fiscal 2023 before the market opened.

Although the company topped analysts’ expectations for third-quarter revenue and earnings, it reported year-over-year declines. GLNG posted operating revenues of $67.25 million, beating analysts’ estimate of $65.36 million. However, this compared to operating revenues of $68.44 million in the same period of 2022.

GLNG’s net income came in at $113.88 million, a decline of 35.1% from the previous year’s quarter. Hamilton, Bermuda-based company reported third-quarter EPS of $0.62, above the consensus estimate of $0.45.

On November 19, Golar announced that the FLNG Gimi departed Singapore’s Seatrium Shipyard to start its 20-year contract for BP offshore Mauritania and Senegal. The voyage is anticipated to take nearly 60 days, including refueling stops in Mauritius before rounding the Cape of Good Hope and in Namibia prior to its arrival.

“With Gimi soon on site for start-up of operations Golar will double its operating fleet of FLNGs and bring total installed liquefaction capacity up to 5.1mtpa. We look forward to having FLNG Gimi in operation, and to continued long term cooperation with BP, Kosmos and the national oil and gas companies of Mauritania and Senegal,” said Golar CEO Karl-Fredrik Staubo.

Further, GLNG announced that FLNG Hilli Episeyo successfully offloaded its 100th LNG cargo on October 14. As the world’s first FLNG conversion which also introduced Cameroon as the world’s 20th LNG exporting nation in 2018, Hilli has maintained market leading commercial uptime since its contract start-up.

Despite these positive developments, GLNG’s bleak financial performance and elevated valuation could be concerning for investors.

Shares of GLNG have slumped 11.9% over the past month and 14% over the past year to close the last trading session at $20.75. Also, the stock has plunged 9% year-to-date.

Here’s what could influence GLNG’s performance in the upcoming months:

Deteriorating Financials  

GLNG’s operating revenues declined 1.7% year-over-year to $67.25 million for the third quarter ended September 30, 2023. The company’s adjusted EBITDA was $74.56 million, down 12.3% from the previous year’s quarter. Also, net income attributable to Golar LNG Ltd decreased 34.5% year-over-year to $92.46 million.

Furthermore, as of September 30, 2023, Golar’s share of contractual debt stood at $1.17 billion, compared to $843.43 million as of December 31, 2022. Total Golar cash came in at $841.06 million, compared to $991.19 million as of December 31, 2022.

Mixed Analyst Estimates

Analysts expect GLNG’s revenue to increase 14.1% year-over-year to $67.50 million for the fourth quarter ending December 2023. The consensus earnings per share estimate of $0.43 for the ongoing quarter indicates a 46% year-over-year decline.

In addition, the company’s EPS for fiscal 2024 first quarter (ending March 2024) is expected to decrease 39.1% year-over-year to $0.58.

Elevated Valuation

In terms of forward non-GAAP P/E, GLNG is currently trading at 10.91x, 9.1% higher than the industry average of 10x. The stock’s forward EV/Sales of 11.42x is significantly higher than the industry average of 2.10x. Likewise, its forward EV/EBITDA multiple of 10.10 is 82.6% higher than the industry average of 5.53.

Moreover, the stock’s forward Price/Sales and Price/Cash Flow of 8.28x and 10.81x are considerably higher than the industry averages of 1.42x and 4.84x, respectively.

POWR Ratings Reflect Uncertainty

GLNG’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by 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. The stock has a D grade for Value, consistent with higher valuation relative to its peers.

Within the Shipping industry, GLNG is ranked #42 out of 43 stocks.

Beyond what I have stated above, we have also given GLNG grades for Momentum, Sentiment, Stability, Quality, and Growth. Get all GLNG’s POWR Ratings here.

Bottom Line  

Despite surpassing analyst estimates for fiscal 2023 third-quarter revenue and earnings, GLNG reported year-over-year declines. Further, analysts seem bearish about the company’s near-term prospects. Given GLNG’s weak financials, stretched valuation, and bleak near-term outlook, it could be wise to avoid this stock now.

Stocks to Consider Instead of Golar LNG Limited (GLNG)

Given its uncertain short-term prospects, the odds of GLNG outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A-rated (Buy) stocks from the Shipping industry instead:

Teekay Corporation (TK)

Overseas Shipholding Group, Inc. (OSG)

Euroseas Ltd. (ESEA)

To explore more A and B-rated shipping stocks, click here.

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GLNG shares were unchanged in premarket trading Wednesday. Year-to-date, GLNG has declined -6.87%, versus a 19.84% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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