Tsakos: Value in Oil Tankers?

04/01/2020 5:00 am EST


Jason Clark

Contributing Editor, The Prudent Speculator

Tsakos Energy Navigation Ltd. (TNP) had been on a sharp downward trend since the beginning of 2020, falling to an all-time low of $1.74, notes Jason Clark, value investing expert and contributing editor to The Prudent Speculator.

However, the oil tanker operator saw a massive recovery of more than 85% last week on the back of an overall stronger equity market and management commentary from its Q4 financial results.

The company announced that current tanker rates are very firm even as oil prices have plummeted, that long-term market fundamentals are still favorable and that it was initiating a $50 million stock buyback.

Q4 2019 was a material improvement over Q4 of 2018. The increase in revenue was due to a greatly improved crude tanker market during the quarter, in which 16 vessels operating in spot trades enjoyed the strongest rates seen in the last five years, as oil demand strengthened and oil supplies increased.

TNP’s fleet of 65 operating vessels achieved high utilization rates, averaging 98.4%, with only one vessel in dry-dock for just part of the quarter. Management said that with oil prices collapsing the demand for inventory build-up and transportation services is booming. TNP with its flexible employment model is taking advantage of that to the full.

The increasing floating storage of oil and the developing contango following the precipitous decline in the price of crude, has led to a reduction in fleet capacity which should assist in maintaining the strong rates currently in evidence.

“As the impact of the coronavirus is being felt around the globe, TNP’s business model is able not only to sustain such shocks, but also profit from them as well,” said COO Mr. George Saroglou.

There is no doubt that being invested in TNP shares over the last few years hasn’t been smooth sailing. That said, we are encouraged by the firm’s priority to control debt and pursue conservative chartering structures that cover fixed costs with upside through profit sharing.

The shares offer a dividend yield of 3.1%. Considering current tanker rates, fleet utilization and the potential of the announced share buyback, we have lifted our target price to $5.70.

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