Value Guru Talks Tankers

06/28/2016 9:00 am EST

Focus: STOCKS

John Buckingham

Editor, The Prudent Speculator

John Buckingham, a leading value investor, money manager and editor of The Prudent Speculator sees opportunities for growth and income among selected tanker and shipping stocks.

Tanker owner and operator Tsakos Energy Navigation (TNP) recently reported quarterly results that were modestly weaker than expected.

For the March period, TNP posted adjusted earnings of $0.25 per share, versus consensus estimates of $0.26, on revenue of $99.6 million, compared to forecasts of $106.7 million.

The company brought forward the scheduled dry dockings of three Suezmaxes in order to install the necessary regulatory upgrades, which is expected to result in significant future cost savings.

As a consequence, those vessels lost 121 operating days in the first quarter 2016, equating to approximately $3.5 million in forfeited net revenues compared to their prior first quarter utilization.

These lost days were mainly responsible for the reduced fleet utilization in the quarter to a level of 95.3%. Lost days in the first quarter of 2015, by contrast, were minimal.” 

Looking ahead, CEO Mr. Nikolas P. Tsakos stated, “2016 is a pivotal year for TNP's growth. Over the course of the next eighteen months, our bottom line will be boosted by the deliveries of 15 state-of-the-art newbuilding vessels.”

We didn’t see much to complain in the quarter and we continue to believe that TNP’s earnings capacity coupled with a strong and healthy balance sheet is not reflected in the current price of the stock as investors somehow think that low oil prices are a negative for the tanker business.

Of course, we respect concerns about the expanded industry order book, but the fact that the shares now yield 5.4% and trade for less than 5 times estimated earnings has us thinking that TNP is a misunderstood bargain. Our target price is $13. 

Shares of Ship Finance International (SFL) have pulled back a bit after the marine shipping company’s quarterly earnings report trailed consensus analyst expectations.

For the period, SFL reported adjusted earnings of $0.50 per share versus forecasts of $0.62, while revenue of $118 million was essentially in line with estimates.

CEO Ole B. Hjertaker commented, “Our business model has been tested through all market cycles, and we are to our knowledge the only maritime company which has been consistently profitable and paid dividends every quarter the last twelve years.”

We are impressed that SFL has been able to navigate nicely through some turbulent operating waters (especially the collapse earlier in 2016 of dry-bulk shipping rates) and we like the diversity of the fleet and the long-term nature of its charter contracts.

We are also thinking that eventually investors will realize that low oil prices are not a negative for the oil tanker business, especially if they fuel increased demand for crude and related products.

In addition to the giant yield (11.9%), SFL trades for less than 7 times estimated earnings. Our target price is $20.

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By John Buckingham, Editor of The Prudent Speculator

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