Shippers Disappoint Market; Market Disappoints Shippers

When a company without a dividend declares one, the stock is supposed to be worth more. Especially a shipper. For a shipper with a suspended dividend, restarting its dividend again is almost the Holy Grail of good shipper earnings reports. But not if you are Paragon (PRGN), apparently.

The report read:

Paragon Shipping beats by $0.08; co announces it will begin paying a quarterly dividend again of $0.05 (15.80 -0.37) : Reports Q2 (Jun) earnings of $0.51 per share, excluding non-recurring items, $0.08 better than the First Call consensus of $0.43; revenues rose 4.1% year/year to $43.0 mln vs the $36.1 mln consensus.

The stock traded over $5 for a brief moment in the aftermarket then sold off hard and fell 30 cents to $4.80. It built support there for the rest of the day moving slowly up to as high as 4.75 before dropping to 4.65 at the close. Wednesday in the premarket it shot up for a moment, was then pushed down to 4.75, and at market open crashed again, to about $4.40. It managed to move up 20 cents in the strong market rally, but spent the rest of the day sliding, closing at $4.31 in the postmarket. A miserable response to the best overall earnings report from any shipper all season.

It is true that the shippers, as a group, have mostly had "cost cutter" earnings beats on sub-par revenue figures, so much so that such a report is by now almost expected. But why can't the few firms with fine earnings hold on to some stock value?

Dryships (DRYS) is certainly partly to blame. Like it or not, it is still regarded as a bellwether of the group. The market refuses to kick DRYS off its pedestal, regardless of the maladministration of its CEO or the blatant mistreatment of the common stock holder. Three offerings in two months? Wall Street surely figures now that any time DRYS rises a few dollars, the company will knock it down with a new offering.

Shortsellers of course had a hand in it too. After repeatedly knocking down small float names with shorts into the opening, and getting good results, shorters have adopted the technique as such an obvious move that they are probably competing to be first to unload. Who can blame them? As long as large funds do not hold large positions in the stock and support its price, the shorters will not fail to profit each time. Only by getting very, very badly burned once in a while do the shorts begin to show proper respect to decent earnings reports.

BDI has continued to fall all month. I guess I have to admit that it probably played a role too. The market was thinking, "You beat it this time, but BDI is off, so you probably can't do it again."

In our trading room, I advised everyone to stay out of the shipper earnings plays in the second half of the earnings season, except for a few runup plays, so thankfully I think that no one got hurt.

It could have been so much better. All it would have taken would have been for a major firm like DSX or GNK to raise their dividend on greatly increased earnings, and the fear would have fallen upon the shorts. Maybe next earnings season.

By Skymist

Comments

[bfras921:]

>But why can't the few firms with fine earnings hold on to some stock value?

Regarding PRGN, you omitted 2 details:

1. the company is selling 10 m shares into the market AFTER just completing a 10 m share offering into the market.

2 The ships values have cratered along with rates to wit one sale caused a 6 m loss. The banks are making the shippers raise more equity as they are all underwater and breaching their debt covenants.

On Drys you said;

>maladministration of its CEO or the blatant mistreatment of the common stock holder

That like saying bernie Madoff mistreated his investors.

IMHO, George Economoo stole from his shareholders in his many self dealings transactions. He bot 4 Panamax from his private company for Drys at 100 m each then canceled it for multimillion dollar cancelation fee. His next caper was to sell 13 capes for an obscene price for drys stock , which he canceled when his stock cratered to 6 on the heels of the deal. He followed up this with self dealings with Primelead.This only scratches the surface.
Avoid DRYS at all cost , imho. There is a reason why it fell from 130 to 5!

Other ceo's saw what George got away with and pulled similar larcenies.

The ceo of exm gave himself low priced warrants and huge bonus's
Soph of egle took 21 m last year even though its stock is down 80% and has a ga rate approching 20 %

2 bulker companies I would consider investing in are DSX and NM. Fairly priced and honest ceo;s

Aug 13 07:22 AM

[nonidiomatic:]

I agree that one or a few companies should stretch hard and add a few cents to the next dividend and shake off the vampiric shorts and their puppet string pulling schemes. And why Wall Street still looks to DRYS as the bellweather shipping firm is totally beyond me. DRYS should be used as a model in MBA programs as to what NOT to do.

Aug 13 08:11 AM

[billatbisland:]

Slight error - This was not a new declaration of a dividend. And, Paragon never eliminated their much higher dividend. It was reduced to 5 cents in one of the last two quarters and this continues that rate.

Aug 13 11:48 AM

[Skymist:]

True on the dividend, thanks. PRGN never actually set their dividend to zero. However, they did skip a dividend in February, making many assume that it would be canceled, only to pop up with the announcement of 5 cents in March, far off their usual schedule.

Aug 13 05:48 PM

[William M. ...:]

Hard to find any shipper above its Jan or Feb high. No doubt the BDI has had a major pull-back. The 22% BDI pull-back this month is due,in large part, to the ending of the CHINA commodities restocking play.

And even with OIl at $70 supplies in the worlds number one consumer nation (USA) are at 20 year highs. So, reason for a big rush into oil tanker stock FRO yet. Still, the world is clearly in better shape today then in the 4th QTR 2008 and 1st QTR 2009. So, I'll be happy to invest in any quality large cap shipping company that gets sold off in any major Market sell-off.

Aug 14 11:37 AM

[svosavvy:]

As to the share offering in prgn I think the guy was brilliant selling those offerings right into the q1 pop on results. Even after the offering there still is only 47 million of the things. According to book price these shares are so deep in the money. forward estimates put these guys at 90 cents earned next year that's still under a 5 p/e. This company looks like a survivor long term. About the only bad thing I have say is that it's a dinky company, kinda like traveling on the ocean in a kayak instead of a cruise ship. long prgn

Aug 14 12:26 PM

[jjp:]

The shipping industry has its contracts way out - a year or two - so their crystal ball of new contracts must be very depressing.
I am only sticking with ISH. They transport cars and military vehicles across the water, and having been doing well. Their rail transport in the Gulf of Mexico has been a drag but offset by their other ships.
It is a seems a constant theme. Despite the propaganda, the economy is full dead stop in the water and on the land.

Aug 14 03:14 PM

[notsosmart:]

lots of rail stock sitting idle.when hundreds of engines & rail cars are kind of "mothballed" things are not good.why doesnt the WSJ give us a daily or even weekly front page # on idle rail stock? that should clarify the situation as the brown shoots cover the tracks.

Aug 15 02:01 PM

[Neal Geller:]

Interesting, I am in on PRGN because of their management so far, have them since March. A bit disappointed with the progress but appreciate the diverse perspectives on this topic, I don't see it enough with shipping stocks. I also took some stabs at other shippers a few disappointed and some have been winners. SB has had a pretty good ride back. DSX kind of let me down on the last release.

Aug 15 03:58 PM

[Shipping Guru:]

DSX is my personal favorite. I was buying shares in early 2009 due to their high revenue coverage and their conversative balance sheet. The stock has tremendously underperformed the rest of the shippers due to the lack of an upside....However, if you look out to 2010, DSX only has ~65% coverage vs. an industry average of 75%.The Company should be trading at a higher multiple because they will have ~$500mm of firepower (credit facilities, cash) to buy ships with at then end of this year. EGLE and EXM continue to trade at the highest multiples in the group despite the fact they are set to buy a slew of over priced newbuilding over the next 3 years and will HAVE to issue shares to accomplish this.

Aug 15 05:44 PM

[wilbr:]

GNK can not reinstate their div due to the ammended credit facility granting them almost unlimited waivers until asset values recover. They earned $1.20 ps for Q2, .07 above concensus and have not diluted with offerings (still under 30M shares in the float). With huge short interest, they lost about 25% dispite the positive fundamentals and upbeat CC. Inexpensive and well managed, GNK should be the bellwether imo.

Aug 18 01:00 AM