Tsakos Energy Navigation - This Oversold Crude Tanker Is Ready To Move

| About: Tsakos Energy (TNP)


TNP offers an attractive 5.25% dividend.

The company has a huge cash position.

The worst is behind this industry.

In my previous life, I traded many a crude tanker company. I loved the high yields, the high risks and the like. As my former life of trading has met my second life, I have toned down my desire for the flashy, and settled on a little more conservative tone which is why i share my thoughts and research with you. Now that oil has gotten bludgeoned, I think a unique opportunity has presented itself in the crude tanker industry. Most of the stocks in this group are trading down anywhere from 20%-30% from their 52-week highs and, though I am tempted to chat about the ones yielding 13%-17%, in this particular case I like one that is paying a mere 5.25% dividend -- Tsakos Energy Navigation (NYSE:TNP).

Tsakos Energy Navigation provides international seaborne crude oil and petroleum product transportation services worldwide. The company offers marine transportation services to national, major, and other independent oil companies and refiners under long, medium, and short-term charters. Its fleet consists of approximately 48 vessels, including product tankers, crude oil carriers, liquefied natural gas carrier, and DP2 shuttle suezmax tankers. They have also partnered up with Statoil for new oil tanker shipbuilding.

Let's delve into their recent earnings report before I go over the other important details. TNP's revenues didn't see a spike, though the company's net revenue did. Remember, 2015 was marked by low oil prices. This pulled down bunker fuel costs-a major cost in running a tanker. So TNP's revenues net of voyage expenses, which mainly consist of bunker fuel cost, totaled $112.9 million, which actually represents a 13.5% increase over 4Q14.

Tsakos has four newbuilds joining the fleet, with five more newbuilds coming in the second half of 2016 and another six in 2017. We may see a substantial rise in TNP's revenues for second quarter onwards.

Interestingly, 2015 was one of the strongest years for crude tankers. Along with sport tanker rates, time charter rates jumped in 2015. VLCC (very large crude carriers) time charter rates, which were in the $33,000-$35,000 range from 2012 to 2014, touched $50,000 in 2015, and Tsakos took advantage of this strong time charter market by entering into fifteen contracts.

With newbuild vessels that will enter the fleet in 2015, the company expects the annual contracted coverage of the fleet to increase to 60%, compared to 45% during the same period last year. The higher percentage of fixed charters should give TNP a more stable revenue. This is why I like the stock down here below $6. The combination of lower oil prices and the timeframe that has transpired while new ships are being built will provide an excellent buying range right now. The yield is a conservative 5.25%, by no means the highest in the peer group, but what I like the most about this company is their cash position of just over $300 million. That represents over $3.20 a share, which is tremendous.

One of the most important things to look at in this industry is leverage. Net debt to EBITDA ratios signifies the financial leverage and inherent risks inside a company. The higher the ratio the higher the leverage. TNP's net debt to capital ratio for the 4th quarter was very low at 43.6%. Their net debt to EBITDA ratio for the same period was 3.68, which is down significantly from the 6.81 it had at the start of the year. This plays into its contractual obligations. In 2016, they are obligated to pay $260 million, or 19% of its total debt. This is fine for 2016 as their cash position is $300+ million. However, the debt for their newbuilds in 2016 will amount to $373 million, and you cannot forget maintenance expenditures.

It is always hard to predict forward a company's free cash flow a year ahead, so for the purpose of this article there is a chance that TNP has negative cash flow in 2016. If the newbuilds are delivered early enough to impact 2016 I think they may be positive cash flow for the year. I see this as a short-term issue, as the expansion of their fleet is a positive thing.

Take a look at the analysts' summary below. If the stock trades near the lower range of $8, then you are in good shape, it's a great trade.

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* (Strong Buy) 1.0 - 5.0 (Sell)

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I am not going to be so quick to take a profit here, as I think there is value in this industry. Although oil price gyrations could have an impact in the short term, the long-term prospects are good.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.