Looks Like Frontline Is Ready for a Rebound

Frontline, Ltd. (FRO) shares recently traded lower after hitting a new 52-week and all-time high above the $72 mark in late June. This stock is currently pressuring a key support level and looks well positioned to rebound. At these levels, especially when considering the nice dividend Frontline pays, this stock looks like a great deal.

Frontline, Ltd. engages in the ownership and operation of oil tankers and bulk carriers. The company's fleet consists of 86 ocean tankers. The company was founded in 1948, carries a market cap. of $4.50 billion, and is based in Hamilton, Bermuda.

Frontline's share value appreciation comes in response to the company's excellent fundamentals, on display when Frontline reported excellent second-quarter results on May 22.

Another Strong Quarter

Revenue was up more than 52% to $528 million. Net income also grew considerably, jumping to $221 million from $159 million in the same period last year. This produced earnings of $2.95, which includes gains from selling assets and the spin-off of a subsidiary.

Frontline noted that the strong quarterly results were a product of higher rates in the spot markets. The spot earnings for the company's double hull VLCC and Suezmax vessels were $104,700 and $53,700 in the first quarter, compared to $43,600 and $37,500 in just the fourth quarter of 2007.

A Big, Fat Dividend

Frontline has a reputation of paying a very hefty quarterly dividend, and it didn't disappoint this quarter when it paid out $2.75 per share.

Estimates Are Up

Analyst earnings estimates have been somewhat volatile within the last month, but the macro-level trend is very strong. The current-year estimate is up to $5.70 per share from $4.05 per share 90 days ago.

Based upon this earnings projection, this stock is attractively priced, carrying a forward P/E multiple of just over 11.5X.

Strategy in Play

On July 2, Frontline announced that it had successfully delivered its fourth and final heavy lift vessel, which concludes the conversion process of four Suezmax ships into heavy lift vessels. The expected net cash generation of $28 million in the second and third quarter will positively effect Frontline's dividend payment. The total gain on the deal is expected to be $285 million.

The Chart

As previously mentioned, shares of FRO recently dipped lower after setting a new 52-week and all-time high. This stock is now pressuring a key support level just above $59. The stochastic is also signaling that this stock is trading in over sold territory. Take a look at the chart below.

 

Comments

[Whisper OnThe Wind]

I'm going to hope you're right about the rebound, but with their claim that the price of fuel will require them to slow down, or earnings will be affected, this could indicate a cutback is coming.

[notsosmart]

this has been a fantastic stock for me. the dividend has been unbelievable & when i emailed the ceo to congrat him on a well run business he responded himself.i have no agenda.i am not connected to this co. or the st.

[Oldguy67]

I have had this stock for years w/purchase price in mid 30's. Great
payouts ! Dividends just keep coming and growing.

[Oldguy67]

I have had this stock for years, average cost in the mid 30's. Great
dividends which just keep coming and growing.

[tankerman]

FRO has been good to me, too, especially since I auto-re-invest the dividends. Including dividends, my original investment has more than tripled since May 2005! The beauty of reinvesting such a high dividend yield is that when the stock price dips, you end up picking up a lot more shares. If you believe that the long-term price trend is up, and you have time on your side, this works out well.

[swimjames]

how much higher can this stock go?