Golar LNG's Valuation Dilemma: Overpriced Now or Undervalued in the Long Run?

The debate over Golar LNG's stock valuation has intensified in recent months, with B.Riley's downgrade from “Buy” to “Neutral” sparking skepticism about the company's near-term prospects. Yet, beneath the surface of short-term concerns lies a compelling long-term story: Golar's strategic pivot toward Floating Liquefied Natural Gas (FLNG) as a scalable, high-margin solution for global gas monetization. This article dissects the tension between B.Riley's bearish stance and the company's ambitious growth pipeline, asking whether the stock is overvalued today or undervalued in the context of its 2025–2030 vision.

B.Riley's Short-Term Skepticism: A Closer Look

B.Riley's analysis hinges on two key arguments. First, the firm argues that Golar's current valuation—trading near its 52-week high—has already priced in the majority of its $16.8 billion adjusted EBITDA backlog, leaving limited upside for investors. This backlog, while substantial, excludes potential commodity upside and inflationary adjustments, which B.Riley views as speculative. Second, the firm revised its Q3 2025 earnings per share (EPS) estimate downward from $0.57 to $0.36, citing uncertainty around the timing of new contracts beyond 2028.

Critics of B.Riley's thesis counter that the firm's focus on short-term metrics overlooks the structural advantages of Golar's FLNG model. Unlike traditional land-based liquefaction projects, FLNG units like the Hilli and MKII offer rapid deployment, lower capital intensity, and operational flexibility. These attributes are particularly valuable in markets like Argentina, where Golar's 20-year charters with 30% inflation adjustments and commodity-linked tariffs could generate outsized returns if global gas prices rise.

The Long-Term Case for Golar: FLNG as a Strategic Moat

Golar's long-term growth story rests on three pillars: contractual certainty, market expansion, and technological leadership.

1. Contractual Certainty: The company's Argentina projects—FLNG Hilli and MKII—represent a $13.8 billion backlog with 90% utilization rates and inflation-linked revenue streams. These contracts, secured through competitive bidding, lock in cash flows for two decades, providing a stable foundation for reinvestment. The Hilli's 100% historical utilization rate further underscores the reliability of these assets.

2. Market Expansion: Golar is actively pursuing FLNG projects in Africa and South America, where gas reserves remain underdeveloped due to infrastructure gaps. In Cameroon, the FLNG Hilli Episeyo has already delivered over 8.9 million tons of LNG since 2018, while the GTA project in Senegal/Mauritania is ramping up production. The company's 10% equity stake in Southern Energy S.A. (SESA) in Argentina adds another layer of upside, aligning Golar's interests with its partners.

3. Technological Leadership: Golar's ability to convert LNG carriers into FLNG units at lower costs than greenfield projects gives it a first-mover advantage. The company is currently converting a fourth FLNG unit in China, with delivery expected in late 2027. This unit, along with a potential fifth, will solidify Golar's position as the sole provider of FLNG-as-a-service, a niche with minimal competition.

Navigating the Valuation Dilemma: A Balancing Act

The crux of the valuation debate lies in reconciling Golar's current stock price with its long-term potential. B.Riley's “overvalued” assessment assumes that the market has already priced in the full value of Golar's backlog and future projects. However, this ignores the company's ability to secure additional contracts through its aggressive strategy of ordering FLNG units before finalizing charters—a tactic that drives competitive tension and favorable terms.

Moreover, the global LNG market is poised for a 295 bcm/yr capacity expansion between 2025 and 2030, with FLNG solutions gaining traction as a cost-effective alternative to land-based terminals. Golar's 3x net debt-to-EBITDA ratio, while modest, is well within acceptable limits given the long-dated nature of its cash flows. The company's recent $575 million convertible bond issuance further strengthens its liquidity, enabling it to fund future projects without diluting shareholders.

Investment Implications: A Long-Term Hold with Caution

For investors, the key question is whether Golar's current valuation reflects its long-term potential or overcorrects for short-term risks. While the stock's 52-week high suggests optimism, the company's $16.8 billion backlog and $44.50 price target from B.Riley indicate a floor for its intrinsic value.

A prudent approach would be to adopt a long-term hold strategy, betting on Golar's ability to execute its FLNG growth plan. Investors should monitor two metrics:
1. Utilization Rates: Sustained 90%+ utilization for the Hilli and MKII would validate the company's operational model.
2. New Contract Securing: Progress on the fourth FLNG unit and potential projects in Congo or East Africa could unlock additional value.

Conclusion: A Tale of Two Time Horizons

Golar LNG's valuation dilemma reflects the broader tension between short-term volatility and long-term structural trends. While B.Riley's concerns about near-term earnings revisions are valid, the company's FLNG strategy positions it to capitalize on the global energy transition. For investors with a 5–10 year horizon, Golar's current stock price may appear elevated—but its long-term potential, anchored by inflation-linked contracts and a first-mover advantage in FLNG, could justify the premium.

In the end, the answer to the valuation question depends on one's time frame. For those who can weather the near-term noise, Golar LNG offers a compelling case for undervaluation in the long run.