DryShips CEO: Dry Bulk Sector Oversold 27 comments
-
Font Size:
-
Print
- TweetThis
I am starting to become bemused by all these CEOs and industry titans making calls on the stock market; just the other day Sumner Redstone was calling for the birth of a new bull market and now DryShips (DRYS) CEO, the always flamboyant George Economou, tells us dry bulk shipping stocks are "oversold".
Even more amazing; this company - at death's door due to debt just a month ago [March 30, 2009: DryShips Gets Going Concern Note] [January 22: DryShips (DRYS) - Reality Strikes Back] is ready to buy assets! "DryShips is uniquely positioned among its shipping peers to go after distressed assets and drive the long awaited consolidation of the industry."
How quickly the worm turns!
The company is doing a lot of interesting things; and indeed I do think there is potentially intriguing possibilities with the deep sea drilling component as well - but what a management. Let's see what they reported...
Via AP:
- Greek drybulk shipper DryShips Inc. posted a first-quarter loss driven by a one-time charge of $166.2 million related to contract termination fees and forfeiture of vessel deposits. Late Thursday night the company, which provides marine transportation services for drybulk cargoes and offshore oil deep water drilling, reported a loss of $101.8 million, or 93 cents per share, compared with earnings of $176.3 million, or $4.58 per share, during the same period last year.
- Results include a loss related to contract termination fees and forfeiture of vessel deposits of $166.2 million, or $1.53 per share; a noncash gain of $8.7 million, or 8 cents per share, associated with the valuation of the company's interest rate swaps; amortization of stock-based compensation of $9.3 million, or 9 cents per share; a gain on the sale of one vessel of $2.4 million, or 2 cents per share; and a gain on the contract cancellation of two vessels of $15.3 million, or 14 cents per share. Excluding these items, income was $47.3 million, or 45 cents per share. (Love it - just ignore every real cost, and they were minting money - this is why I say how expensive stocks really are in the "real world" but we all wink and just use 'as reported' earnings.) Analysts polled by Thomson Reuters estimated a profit of 19 cents per share, on average. Analysts typically exclude one-time items from their forecasts.
- Revenue slipped 15 percent to $196.6 million from $232.1 million in the prior-year period. Analysts forecast an average revenue of $196.8 million.
- For its drybulk carrier segment, the company said net voyage revenues fell 59 percent to $88.9 million.
- Quarterly time charter equivalent rate -- a measure of hire rate -- plunged 57 percent to $27,115.
With DryShips at this point it's more about (ahem) staying afloat - this is basically a definition of a pure play on the return of global trade growth. On the plus side, they had to pay a massive fee to get out of some vessel purchases - but in their financial position, that's ok.
Via Reuters:
- DryShips, which had secured loan covenant waivers for its debt totalling about $1 billion, said as of March 31, it had liquidity of $1.67 billion.
- DryShips, which was once predominantly a spot market operator, changed its chartering strategy by employing a majority of its vessels in the long-term charter market. (That is a big change - it's too bad George did not make that decision about 12 months ago when he could of locked in monster rates) ...said 65 percent of remaining operating days in 2009 are fixed in long-term charter contracts.
- Economou said total revenue from long-term time charters are expected to be $1.1 billion over the next 3 years.
- "We have reduced capital expenditures totaling $2 billion and at the same time de-levered our balance sheet by raising $500 million of equity," Economou said.
Now what made me favorable to DryShips last year was their stealth deep sea driller business [May 22, 2008: DryShips - Earnings Growth Continues & Potential Deep Sea Oil Drilling Play].
Below came some great news on that front.
- The company also said it signed a three-year $630 million contract with Petrobas, the Brazilian oil concern, to support exploration drilling in the Black Sea.
- The company has two newbuldings, one of which is expected to come online in late 2010. Credit Suisse's Lewis said financing for those drillships remains a concern as the company is yet to start discussions with the bankers. Last year, DryShips had agreed to buy two ultra deep water drillships for $1.6 billion and those newbuildings are yet to be contracted. "Should DryShips be able to secure long-term contracts for these unfinanced drillships, clearly that would go a long way in helping them in securing financing," Lewis, who has an "underperform" said.
- Lewis also said the company has enough time to address these two unfinanced drillships but added that the company may have to raise debt to pay for the newbuildings.
DryShips is always an interesting stock as it is daytrader central, with a CEO that... well, let's just say he is controversial. But if they can escape the debt load, and Baltic Dry shipping rates stabilize anywhere near here - they can make money. The switch to long term rates will factually make them less volatile but I assume traders will skip this fact, and still treat DRYS as if they are 1:1 loaded with direct correlation to the Baltic Dry Index. Last, they have the deep sea driller (my favorite area of the oil complex) as the kicker.
I might have to get this one back on my radar due to this switch to longer term rates, and the covenant waivers. If they can get financing for those deep sea rigs - that would be a huge win. I hate the big debt load but investors seem to whistle past the debt yard nowadays. Still a lot of moving parts but if things were clear, this would not be a sub $10 stock.
Related posts:
- October 31, 2008: Credit Tsunami Swamps Trade
- November 3, 2008: UK Telegraph - Investors Shun Greek Debt as Shipping Crisis Deepens
No position
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
TraderMark
-
2
Don Dion
-
3
Cliff Wachtel
-
4
Mike Havrilla
-
5
James Quinn
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 27 comments:
for the immed future.
bulk shippers as they try to get RED balance sheets into the Black
on better earnings ......for most that is many months away ....there is however one company among the week and strong that is truly
undervalued in a big way and actualy un noticed ,but not for long...
i will tell you that UNLIKE DILUTED DRYS WITH 185 million or so diluted shares now ...the undiscoved company i love ten times more than drys has only 29 mil shares outstanding but...get this
they have only 8 million shares in the float ....the company im refering to has connsectutive earnings increases on balance
unlike most of the shippers....this company i will make a fortune with on growth going forward is held 50% by institutions and is selling remarkably under $5.00 a share....they announced a share buy back of 30 million diollars of their stock by sept 09 ..a few months away.....ok just a second i will tell you the symbol ...earnings for this company i love will be announced May 12 th 09....forcasts are for increased earnings ....in fact on April
10th 09 Zacks.com put a rating of .....get this ..."SUPER BUY" for this company.....any way they plan and are cash liduid to expand well into 2010.....summer press will get them noticed by wallatreet...' Oh The Name ...thanks for reminding me ....so keep an eye on this stock ....the symbol is ULTR....Ultrapetrol(Ba... .....so going forward this money making company with
super management looks better than DRYS to me because of the growth comming and the 8 mil shares for trading.Many other companies with to many shares and bottom line losses just cant compare to my best baby stock of 2009 and beyond....but to do realy well i myself and me have and will be buying for long term
only and get this i will still be holding ULTR even after they split
2 for 1 or 3 for 1 or what ever as this this my own opinion and ive been correct leaving the market 5 years ago and jumping back in
in last November.....im a buyer but i do my own research and i never chase a stock up ...i buy shares low and hold long.I have taken some initial cost off the tables now and then so i hold mostly free shares from trading.....but in the case of ULTR i will hold till 30 bucks in 2010 or 2011 and hope they split....lets face it 8 million shares their float is an investors dream.....your pal Halrow
On May 03 08:43 AM TripleG wrote:
> Economou has clearly mismanaged this company. Another CEO that needs
> to be replaced but probably won't be.
As inventories deplete, there will be a need for more shipping. Watching the BDI is one good indicator, because rates need to improve for profits, and to allow some companies to lower debt. Maybe Claymore/Delta Global Shipping Index ETF (SEA) would be a more diversified play, though the volumes are on the low side of things, so I don't know that I would buy it. BDI and shipping could move sideways for another quarter or two.
Anyway, I am looking elsewhere than Dry Ships (DRYS), though it is interesting to track, but then I'm not a daytrader. I did grow up around shipping, I do think the sector is worth watching, and offers a few good potential investments.
I still think there are less risky companies to look into. Funny thing is that if I compared Dry Ships (DRYS) and Paragon (PRGN), the management team looks better at Paragon. My choice now is wait and see on what I feel is an overbought sector, with few exceptions to that. When something in the sector looks oversold, or heads that way, then maybe we might see some good choices.
In the short term, shipping is overbought. FRO is an example of that after last week's run.
On May 03 03:45 PM HerrHansa wrote:
> George Economou is not John Fredriksen, though even his companies
> are down in the current environment. I think a bigger question is
> whether shipping is at a bottom, though if it is, then I don't see
> Dry Ships (seekingalpha.com/symbo...) leading the charge
> off the bottom. There are less risky plays in this market.
>
> As inventories deplete, there will be a need for more shipping. Watching
> the BDI is one good indicator, because rates need to improve for
> profits, and to allow some companies to lower debt. Maybe Claymore/Delta
> Global Shipping Index ETF (seekingalpha.com/symbo...) would
> be a more diversified play, though the volumes are on the low side
> of things, so I don't know that I would buy it. BDI and shipping
> could move sideways for another quarter or two.
>
> Anyway, I am looking elsewhere than Dry Ships (seekingalpha.com/symbo...),
> though it is interesting to track, but then I'm not a daytrader.
> I did grow up around shipping, I do think the sector is worth watching,
> and offers a few good potential investments.
Balance sheets, Capital needs, and long term charter coverage are the most important things in this industry.
Who do you trust? DSX has cash, very little debt.
Diana diluted by 6 m shares to raise $100 m, to purchase distressed assets.
DRYS diluted by 110 m shares to raise $500 m, to get out of debt troubles
Who will be "Uniquely positioned to take advantage of distressed assets" later this year.
www.hellenicshippingne.../
Dig through enough news, and you will find that nearly ten percent of dry haulers are idled. Add to this that new ships are still scheduled for delivery, and quite soon at some companies. It's not a bad sector, but care is needed prior to investing in any company. I would imagine some M&A activity, and maybe a few delistings within the next few quarters.
DRYS is selling more shares to raise $475 million. That should bring shares outstanding to 250 million.
The Primelead spinoff that people are hoping for will have over 300 million shares outstanding. That makes holding this for the spinoff, a hard sell.
To be honest, the only two companies I won't touch are DRYS and OCNF. There are better places to invest.
On May 03 04:20 PM Sober Realist wrote:
> Any opinion on PRGN? Appears to be a company in good shape, but seems
> to be lagging in this recent bull run.
On May 04 05:01 AM HerrHansa wrote:
> What worries me on Paragon Shipping (seekingalpha.com/symbo...)
> is that their market cap is very close to the (currently suspended)
> delisting limit of NASDAQ. If the stock fell much below $3 a share,
> they would be in trouble. Other than that, small company, good profit
> margins, though a bit of a worry on pending new ships impacting their
> bottom line. I think if they stayed about $3 a share on the next
> market correction/test, then maybe.
>
> I still think there are less risky companies to look into. Funny
> thing is that if I compared Dry Ships (seekingalpha.com/symbo...)
> and Paragon (seekingalpha.com/symbo...), the management
> team looks better at Paragon. My choice now is wait and see on what
> I feel is an overbought sector, with few exceptions to that. When
> something in the sector looks oversold, or heads that way, then maybe
> we might see some good choices.
Paragon Shipping Inc. Announces Partial Exercise Of Over Allotment Option
"Paragon Shipping Inc. announced that the underwriters of its public offering of 10,300,000 common shares completed on August 15, 2007, have elected to purchase a total of 1,016,267 common shares upon exercise of the over allotment option granted to the underwriters by the Company and certain of the Company's current shareholders. As a result of the over allotment option, the Company will sell 697,539 common shares and the selling shareholders will sell, in the aggregate, 318,728 common shares. The Company will not receive any of the proceeds from the sale of Common Shares by the selling shareholders. Following the completion of the over allotment option, the Company will have 24,584,983 common shares outstanding."
www.reuters.com/financ...
So if Paragon (PRGN) can keep the share price above $2.85, they are just above the market cap requirements. When I typed the earlier reply on 4 May, they had been as low as $3 and were at about $3.77 that day as a high point. I still would not call it a great stock to buy into, though if you made a little profit, then that's cool. However, I use far more than the share price as a way to judge whether or not to invest in a company.
Disclosure: since this thread began, the only company I invested in was Golar LNG (GLNG), which I still hold. While Paragon was tempting to me, I never felt that way about Excel Maritime (EXM), though the latter reports on the 12th, and I think waiting until after that might not be a bad call. So let's check back on this next weekend, and see what happened.
As the old saying goes, "I'd rather be lucky than smart."
You get the gold star of the week in my book. That paragon call was prescient. I don't know why I overlooked them, your touting of them made me go back and take a second look. What I found was a money making company trading at 30 cents of book value. How could I not buy some. So I did last week at 3.55, wow, what a ripper.