Dryships' Increasingly Valuable Fleet of Vessels

There is another reason to buy Dryships (DRYS), the largest publicly traded drybulk shipper, besides its extremely low PE relative to its industry and market and its high net income relative to expenses: it has a large fleet of vessels that is becoming more valuable each day.

A lot has happened to make its vessels more valuable. First, there has been tremendous demand for commodities, so that Dryships and other shippers have no trouble chartering their vessels at attractive rates. This has created a huge frenzy to buy ships to meet this demand. Ship builders cannot make them fast enough; lots of ships are on order, but new builds are out 2 or 3 years. Some of the ship yards where these boats are on order are green fields (they themselves have not even been built)! The demand is so great that you can buy older ships for prices higher than new ones (because they will not be ready for a few years and the shippers want the boats right away). Moreover, the price of iron and steel has been climbing, adding to the value of their boats. Dryships has also been upgrading its fleet buying newer vessels and jettisoning the older less profitable ones.

Dryships recently sold one of its older (1996) Panamax vessels (weighing 73000 dwt) for 65 million dollars, or about $890 per dwt. They replaced it with a more modern 2000 Panamax of similar weight for 72 million dollars, or about $986 per dwt. A year ago, they bought similar (2001) Panamax vessels for 49 million dollars, or $662 per dwt. This is typical of the industry: the value of theybulk fleet is increasing dramatically.

I've looked across the spectra of drybulk ships: Capes, Panamax, Supramax, Handymax. Currently their prices are all higher over the year. In general, all the vessels trade at about the same dollar price per dwt. A year ago they averaged $640-720 per dwt; they now go for $880 - 1000 per dwt. Dryships has a modern and large fleet of 38 vessels comprising a whopping 3,226,000 dwt fleet. At a rate of about $910, the fleet is worth 2.9 billion dollars. It has over 100 million in cash, 1 billion in debt, the likely proceeds of 360 million in its secondary, and a 30% holding in Ocean Rig, plus a thriving business hauling commodities that made 475 million in earnings last year.

Today's market cap: 2 billion.

Disclosure: Author has a long position in DRYS

Comments

[zenalgorithm:]

DRYS looks like a falling knife. In the short term, a short position might be much more profitable down to about $20.

2008 Mar 18 07:34 AM

[MistaWhite:]

$20?? Any facts to back that up?

2008 Mar 18 08:14 AM

[atomic man III:]

how come no one ever talks about the many drillships drys is purchasing independently of ocean rig?

2008 Mar 18 08:41 AM

[User 149217:]

the world is slowing... DRYS is going much much lower. you should spend less time writting articles and start reading them...

2008 Mar 18 08:45 AM

[drys long:]

China is not slowing - overheating maybe but they are not buying any less seaborne iron ore. Fyi - Jefferies has a $160 price target for DRYS.

2008 Mar 18 10:55 AM

[G23ROCKS:]

Nice article. DRYS is a good bet.

2008 Mar 18 12:30 PM

[jimmy46:]

MAN, this is the 3rd day in a row you've been pumping this stock.
Did you buy it at $131?
And think saying the mantra buy it , buy it, buy it,
will induce suckers to bail you out?

2008 Mar 18 12:45 PM

[bulkshipper:]

The stock doesn't need to be pumped. Analyst target 114. Its at 62. PE 4.6. Even at the current BDI the stock will meet target. BDI is predicted to excellerate as ore begins to move again from Brazil and Australia. The ore negociation difficulties and bad winter in China created a backlog. Grain season starts very soon. Looks like the perfect positive storm. I feel sorry for the shorters.

2008 Mar 18 04:52 PM

[Saint Xinon:]

DRYS is cool short at 75-77 range.
Too many speculative hedge fund buyers.
One large margin call
Position dump and may fall by 35-40 $.

Else it is great company with great fundamentals.

2008 Mar 19 01:27 AM

[joli:]

I am amazed that anyone would doubt that Dryships is the best bulk shipper out there, that it is grossely undervalued and that it will rally back up to new highs.

2008 Mar 19 05:01 AM

[User 165759:]

drys is one of a few recession proof stocks that is priced at less than half of it's value. When most other stocks lose money drys will still be raking it in. As the BDI climbs everyone will be trying to buy drys at a lot higher price.

2008 Mar 19 11:56 AM

[User 165759:]

remember that everything has it's season. A smart person will buy a snomobile in the summer not in the winter. Buy drybulk shippers like drys now, not next summer. Most people have tunnel vision and can't see the big picture because they can't think outside the box. I have bought and sold stock using this analogy and so far this year I am up over forty percent in my portfolio. I am taking that money and investing in drys. I love double digit returns.All you doomsday sayers come back next fall and ask me where my positions are and we will compare returns.And by the way I always buy over a hundred thousand dollars of a companys stock each time I trade.Maybe these people that say drys is worth twenty dollars only have twenty dollars

2008 Mar 19 12:29 PM

[163888:]

I think your right, it happens every time with dry bulk shippers. This is the bad time, well actually Feb. should have been the start of good times for these stocks. Wait a month, by that time China should have finished its negotiations.

2008 Mar 21 04:46 AM

[Lion is King:]

DRYS? Ah yes, I got this one last year on it's way down from $131, and followed it all the way to $50s. After the Q4 & overall 2007 results, the fact that the CEO has his own money riding in his investment (DRYS, OceanRig) and all the latest price targets convinced me to follow it up to the mid $70s after that it will be sweet sailing all the way to $150s or its equivalent if they split.

So, with all due respect, my doom and gloom - it's the end of the world as we know it - subprime crisis - housing market - credit crunch fearing - $20/share buying - long term/short term pesimistic friends, the only way to catch a falling knife is by the handle.

When you aim for a stock aim for the best, don't go for the legs go for the throat.

2008 Mar 21 03:47 PM