Teekay Corporation: Strong Buy Up To $15/sh As Thesis Develops

Summary

  • Teekay Corporation (TK) is our top idea for 2017. We unveiled our research in November 2016 near $6/sh. The stock soared above $11 in January and February before stalling out.
  • The bulk of our thesis depends on an upcoming distribution hike at Teekay LNG Partners (TGP). The Teekay Offshore Partners (TOO) subsidiary plays a minor role in valuation.
  • Our price target for TK is now $15/sh. I expect TGP to raise distributions handily (up to 5x) by mid-2018.
  • Morgan Stanley released a report this morning claiming that the TGP distributions will not increase and that TK is in financial danger due to TOO refinancing concerns. This led to a massive selloff.
  • I disagree. Re-iterating TK as a strong buy and my #1 idea. This report contains our initial rebuttal. Additional research will be released soon.

Note: Members of Value Investor's Edge had access to a version of this commentary prior to market open.

Image Credit: USA Today

Our Prior Research And Price Moves

We've written extensively about Teekay Corporation (NYSE:TK) in public and private research channels. Our most recent public report was the release of our 'Top Idea for 2017' in early November 2016 (when TK was close to $6/sh), where I shared my belief that TK could reach an end-2017 target of $18/sh.

This target was based on Teekay LNG Partners (TGP) restoring its distribution to previous levels ($0.65 to $0.70/qtr) by the end of 2017, and it also required Teekay Offshore Partners (TOO) to stabilize. Oil price momentum helped carry TK above $11 during both January and February of 2017, but this momentum reversed strongly, and TK started to fall back.

In the Q1-17 results, TOO reported a failed charter with Petrobras (PBR) for an offshore support vessel, the "Arendal Spirit," which led to the potential loss of around 18 months of charter hire and brought $112M of debt into current status, due by October 2017. Additionally, TGP management seemed to suggest a major distribution hike was off the table until mid-2018.

Due to previous concerns with TOO, I had reduced my fair value target to $15/sh. I began an additional analysis, reviewed the upcoming cash flow, and concluded that $15/sh still made sense, with some fluctuation for underlying prices and performance at TOO and Teekay Tankers (TNK).

Shock Downgrade from Morgan Stanley

I've been working on a comprehensive update report for the past couple weeks and was planning to have a full-length report out soon; however, a shock report dropped early this morning. Morgan Stanley (MS), led by analyst Fotis Giannakoulis, released a massive downgrade on the entire Teekay Enterprise. Most

This article was written by

J Mintzmyer profile picture
19.23K Followers
The ultimate shipping and logistics platform.
BS in Economics, MA in Public Policy (International Economics), pursuing Doctoral in Public Policy (Intl Relations). J is an established independent research provider and hedge fund consultant in the maritime shipping sector.

Mintzmyer founded Value Investor's Edge, a top-ranked deep value research service in May 2015, with the goal of establishing a top-tier community of deep value investors and activists. Value Investor's Edge subscribers leverage exclusive in-depth analytic reports and community investment experience to discover disconnects in global shipping and a variety of other beaten down sectors.

As part of directing Value Investor's Edge, Mintzmyer works with a team of five analysts and data technicians to deliver quality research and analytics to over 500 members. He has interviewed numerous management teams at public maritime firms, and has worked with a multitude of investors. Mintzmyer's exclusive analysis has received frequent 'Top Idea,' 'Must Read,' and 'Small Cap Insight' awards at Seeking Alpha and he is commonly cited in industry news such as TradeWinds and Splash 24/7.

Pursuing a Doctorate in Public Policy (Intl Relations) from Harvard University. M.A. in Public Policy, with focus on International Security & Economic Policy from the University of Maryland. Distinguished Graduate of the United States Air Force Academy with a B.S. in Economics. Extensive background in financial analysis, equity research, accounting, portfolio management, and customized asset allocation through nearly a decade of formalized education, personal studies, and practical experience. Avid reader of business/investments and biographies.


Legal Disclaimer: Any related contributions to Seeking Alpha, or elsewhere on the web, are to be construed as personal opinion only and do NOT constitute investment advice. An investor should always conduct personal due diligence before initiating a position. Provided articles and comments should NEVER be construed as official business recommendations. In efforts to keep full transparency, related positions will be disclosed at the end of each article to the maximum extent practicable. The majority of trades are reported live on Twitter, but this cannot be guaranteed due to technical constraints.

My premium service is a research and opinion subscription. No personalized investment advice will ever be given. I am not registered as an investment adviser, nor do I have any plans to pursue this path. No statements should be construed as anything but opinion, and the liability of all investment decisions reside with the individual. Although I do my utmost to procure high quality information, investors should always do their own due diligence and fact check all research prior to making any investment decisions. Any direct engagements with readers should always be viewed as hypothetical examples or simple exchanges of opinion as nothing is ever classified as “advice” in any sense of the word.

Disclosure: I am/we are long TK. 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.

Additional disclosure: I am long TK and TGP. I am long TGP via stock and options, some of which were acquired this morning as part of a swing trade in response to market conditions this morning. Due to high portfolio concentration, I may slightly pare my position in market conditions dictate.

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