Flex LNG (NYSE:FLNG) is set to benefit from the strong demand for LNG (liquefied natural gas) carriers, especially in the European markets. FLNG stock has significantly outperformed the broader markets this year and has gained quite a lot. Though solid demand is a positive, valuation concerns could limit the upside.
Demand Environment Remains Strong
Russia’s invasion of Ukraine raised serious concerns about Europe’s energy security in the short term. Amid natural gas shortage due to the curtailment of Russian natural gas exports and high demand, Europe has turned to the U.S. and Qatar for the import of LNG. This has driven the need for large LNG carriers, the Wall Street Journal reported.
During the Q1 conference call, FLNG highlighted that the European buyers had increased their imports by 60%. FLNG, which owns 13 modern and large LNG carriers, is well-positioned to capitalize on the strong demand trends.
FLNG’s CEO Oystein Kalleklev stated, “Time Charter rates remain very strong.” Kalleklev added that charterers are happily paying a substantial premium to spot rates “in order to lock in large fuel-efficient ships on longer periods” amid a much tighter freight market.
Is Flex LNG Stock a Buy?
While FLNG would benefit from a favorable operating environment, its stock has risen about 59% year-to-date and significantly outperformed the broader markets.
Due to the rally, three analysts have unanimously recommended a Hold on FLNG stock. Meanwhile, the average price target of $30.59 implies 13.3% downside potential.
Jefferies analyst Omar Nokta initiated coverage on FLNG stock with a Hold recommendation. Nokta is upbeat about FLNG’s long-term prospects. However, the recent rally in FLNG stock and its high valuation is why Nokta remains sidelined. Recently, Anders Karlsen of Kepler Capital downgraded FLNG stock to a Hold from Buy.
While analysts remain sidelined, the stock has a positive signal from TipRanks’ investors. About 4.3% of investors holding portfolios with TipRanks have increased their holdings in FLNG stock in the last 30 days.
Overall, FLNG stock sports a Neutral Smart Score of 7 out of 10 on TipRanks, implying it could perform in line with the market averages.
Bottom Line: Positives Priced in the Stock
Flex LNG is poised to benefit from the higher demand for LNG carriers and could deliver solid financial performance in the coming quarter. However, with a 59% year-to-date growth in FLNG stock, positives appear to be priced in and could restrict further upside.
