Aegean Marine Petroleum: Stock Price Outrunning Earnings Growth

Aegean Marine Petroleum Network (ANW) has released earnings for the 1st quarter of 2008. My impression is the company is expanding its operations rapidly, but earnings growth is not yet following the increasing sales. The report shows sales increased 46% from Q1, 2007. Earnings per share came in at 18¢ per share, 2¢ more than the 1st quarter of 2007 and the same as Q4, 2007.

The business of Aegean Marine is to provide ship fueling services at its own service centers worldwide. The company currently has 8 centers, working towards 10 at the end of 2010. Ship fuel is delivered by bunkering tankers, of which ANW currently has 22 with orders in to bring its fleet to the 40 range. The bunkering market is very fragmented worldwide with many single hull bunkering tankers that will have to be removed from service in the next few years. Aegean’s plan to build a global network of double hulled bunkering tankers should allow the company to be the dominant player in ship fueling.

I like the company’s growth, but do not currently like the stock valuation ($40+). As noted above, earnings are not yet keeping pace with revenue growth. The stock trades at better than 60 times 2007 earnings and 32 times “projected” 2008 earnings. However, per share earnings have been basically flat for 6 straight quarters, so the stock price is anticipating some serious earnings growth. I think the stock will be more attractive if one of three things happens:

1. The stock price falls: below $30 would be good, $25 much better. The company will continue to grow, we just need the market to get tired of waiting.
2. Earnings actually do start to increase and accelerate without a significant increase in stock price.
3. The company finishes most of its fleet build out and starts paying out free cash flow as a significant dividend. This would be probably in 2010 or 2011.

I will continue monitoring ANW in my Special Situations Portfolio. This is a company with tremendous prospects.

Note: I currently do not have a position in ANW.