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Golar LNG (GLNG) Hurt by High Debt and Closure of Shipyard

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We recently issued an updated report on Golar LNG Limited (GLNG - Free Report) .

Golar LNG has a debt laden balance sheet. The company’s total debt-to-total capital ratio increased to 0.63 at the end of the third quarter from 0.61 at the end of the first quarter. The increasing total debt-to-total capital ratio implies that the proportion of debt to finance the company’s assets is on the rise. Higher debt, as a percentage of total capital, suggests that a company is at a significant risk of insolvency.

We are also concerned about 4% year-over-year decline in operating revenues in third-quarter 2020. The downside was caused by COVID-19-induced closure of the shipyard where Golar Tundra was being dry-docked and significant reduction in fleet utilization. Continuous below-par top line performance might prove to be detrimental for the stock.

However, the sale of FSRU LNG Croatia (previously known as Golar Viking) to LNG Hrvatska is expected to generate approximately $47 million of free cash. This might bolster its Golar LNG’s balance sheet.

The company’s cost-cutting measures are helping it better tackle coronavirus-related adversities. Notably, administrative expenses dropped 33.7% year over year in the first nine months of 2020, thanks to cost-reduction measures like lowering payroll and travel costs.

Zacks Rank & Stocks to Consider

Golar LNG currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX - Free Report) , FedEx Corporation (FDX - Free Report) and Herc Holdings Inc. (HRI - Free Report) . Knight-Swift carries a Zacks Rank #2 (Buy), while FedEx and Herc Holdings sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, FedEx and Herc Holdings is pegged at 15%, 12% and 12.6%, respectively.

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