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Danaos Is Still A Buy After The Recent Jump

May 04, 2021 1:02 PM ETDanaos Corporation (DAC)61 Comments


  • Danaos soared 13.5% yesterday due to the continuation of the HARPEX Index's rally, and therefore, investors' expectations of DAC beating its revenue and EPS forecasts.
  • Compared to its main peers, the company looks undervalued to EV/EBITDA and Price-to-Sales multiples.
  • HARPEX's behavior explains the variance of the stock price by 90.57%. According to the constructed model, DAC is trading where it should be.
  • Despite the risks involved, I recommend buying DAC ahead of its 1Q report (May 10, 2021).

Воздушный верхний вид контейнеровоза с кранового моста для грузового контейнера, Бизнес глобальной компании коммерческой торговли логист
Photo by AvigatorPhotographer/iStock via Getty Images
Author's note, May 5: This version of the article is a revision of the one that was published on May 4th on Seeking Alpha. After SA's readers and industry experts pointed out my mistakes, I decided to correct the article, focusing on

This article was written by

Oakoff Investments profile picture

Oakoff Investments is a personal portfolio manager and a quantitative research analyst with 5 years helping readers find a reasonable balance between growth and value by sharing proprietary Wall Street information.

He leads the investing group Beyond the Wall Investing with features that include: a fundamentals-based portfolio, weekly analysis on insights from institutional investors, regular alerts for short-term trade ideas based on technical signals, ticker feedback by request from readers, and community chat. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in DAC over 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (61)

vantuckman profile picture
Long DAC. I would be concerned if I had to sell today after this drop--but I don't have to. I would buy more, but I already have my limit. I guess I'll just have to wait and see how the market reacts to the cycle that has just begun. I might just check in next quarter and see how my thesis is playing out. Meanwhile, I am going to catch up on my chores. Stay safe! Kirk
Brent1100 profile picture
Help! Why getting crushed today?
@Brent1100 Because I was on the fence about it and finally bought in a few days ago. Hence, it plummets 12% in one day.
@Brent1100 I would say, some of the fast money getting ahead of the dividend news and a potentially great Q1 earning news are getting out. Earnings were not a blow-out like many (over)expected it so there was no bump. Now they have to sell with 10%-off price. Nothing changed from company's perspective, only strengthened the story. Lots of good news if you go past the headline of mixed earnings (beat eps and miss revenue estimates - although they were skewed somewhat by one analyst, without whom the targets would have been exceeded.)
@Brent1100 the big drop today was a surprise to me as well. But I'm adding more shares at the lower price today to the 1,000 I already own. In the conference call today $DAC management would not commit to higher dividends right now but stated they want to build a war chest. The analysts pressed them several times about higher dividends and got the same answer. I think some investors wanted a management commitment to higher dividends soon. Management said they set the dividend to be competitive with other shipping companies and to expand their shareholder base. Perhaps the shorts are back in force - over 11% of the float was short in mid-April. They're misguided I think. I believe their victory today (if it's them) will be short-lived (no pun intended). But I don't know the exact cause for today's drop.

Here's the good news that management reported in the conference all today:
1 - Net Asset Value = $1.87B or $90.90 per share - that is about a 60% premium over today's price of around $57.
2- Over the past 6 months, 33 ships have been contracted at higher rates - some won't take effect until the 2nd or 3rd qtr this year - so there is more revenue coming in the pipeline.
3 - The contracted revenue for 2021 is now at $575M- already $113M higher than 2020 revenue of $462M - that is a 25% increase over 2020 revenue right there. And management expects the $113M increase to go up to $122M as the remaining open days fill up - only 3.7% of 2021 operating are still open - nearly 96% of 2021 days are booked already! So they're projecting total 2021 revenue of $584M.
4 - $DAC does not want to buy overpriced ships right - they bought at the bottom of the cycle and, for now, they want to reap the rewards and not buy ships just to be buying ships.

I believe $DAC will increase the dividend as time goes on but they don't want to commit for now. That turned off some shareholders.

Management was asked about spinning off the $400M $ZIM investment to $DAC shareholders. That was a great question. Management said they had no plans for that. I would welcome that unless there were adverse tax consequences.

Stay the course Longs - IMO this stock is still going to $90 to $120 per share. Just be patient.
vantuckman profile picture
Way long DAC. I would like to congratulate the author and SA community for its measured and civil response to the errors contained in the original article. It was obvious the author put great effort into the writing despite the errors. His passion was apparent too. Instead of ripping him, the commenters guided him back in the right direction with kindness and respect. I can only WISH our elected officials would treat each other similarly. Perhaps then we could have disagreement AND progress! (Much like the progress made here!). Stay safe!
Oakoff Investments profile picture
@vantuckman Thank you very much for the comment, I appreciate it!
An insight into how long will these rates might last:

Ironically DAC is down big today (which could just be profit-taking or something else) and so is BDI. Coincidence? Do people at large equate BDI with DAC or all shippers for that matter (like Fool.com.) BDI has been a familiar index among traders than Harper or any of the other container shipping indices over the years, as I understand.

@Arcmor The answer to your coincidence question is yes. I think a greater share of investment decisions are rational rather than irrational. Today’s DAC action could easily be profit taking, but could be any reason because so thinly traded. DAC still seems undervalued to me.
@stephenc curious what dividend discussions have on price next week
@Oakoff Investments glad to see that you took actions. look forward to your future contribution. thanks in advance.
Happy to see this still climbing, by far the best performer in my portfolio of the last year.
This will be a great company to short later this year.
Joeri van der Sman profile picture
@E M O Based on? Its still pretty cheap.
@Joeri van der Sman true. By the analysis given. But I’m looking at the supply chain breakdown across the world. Dry shipping is always one of the first to go.
Joeri van der Sman profile picture
@E M O Well, DAC is no dry shipper, its a container company.
This will be a great company to short later this year or take some LEAPs.
@DMVO Yes....P/E ratio is excellent however you will see it fall within two years. The shipping business cannot and will not hold with the production of goods in scarce supply.
@E M O Here is a suggestion - since you would like to short this at the end of the year, for now you should pump the stock. Let's make it go $120, then you can short and make even more money. Isn't that a great idea?
Oakoff Investments profile picture
Thanks, everyone for your comments!

I actually made the mistake of choosing not exactly the right companies to compare. I was confused by this article, after which I began to look for misprising in the stock price:

Based on the alternative peers you proposed, I believe that the conclusions of my article remain correct: $DAC is still undervalued compared to its real main competitors. This, of course, does not excuse my fatal mistake.

I hope future readers will pay attention to all the critical comments under this article and take note of them. I am grateful to the Seeking Alpha community for their quick response and helpful criticism, which helps us, the authors, to develop. I will definitely be much more careful when writing my next articles. Thanks again!
DerekCheung profile picture
@Oakoff Investments Keep going. You're growing. Looking forward to next article and your analysis. You've got the right attitude and right energy.

Maybe post revised article given the feedback?

I've started to follow :-)
@Oakoff Investments Not just your competitor selection. Looking at the BDI is inappropriate. The article is incorrect from the first sentence onwards.
@Oakoff Investments I suggest for your sake, a full correction is made (I don't know how this works on SA) and the article re-posted. Otherwise, any future articles you write will always have this bad precedence hanging over it. Most people won't move past the summary at the top.

Apart form the issue of BDI and therefore erroneous cohort for comparison, there are many other useful things in the article that I learned from which I am thankful for.
Juan M Gonzalez profile picture
I agree that $DAC is still a buy, but for different reasons which are all already addressed by other comments to this article.
@Oakoff Investments Thanks for your analysis - which with a substitution to the proper industry competitors - as mentioned by earlier posters - would have been a great article. Your conclusion was correct, even if supported by the wrong competitors. I own about 1,000 shares of DAC which is my largest of 24 holdings. In just over 4 months, I'm up 123%. I know many others that got in sooner have done even better than me. I didn't notice it until mid-December 2020 and I jumped on it the next day.

I learned a lot about shipping companies by listening to Mintzmyer's podcasts. They're long but quite good. I didn't understand all of the various types of shipping companies before I invested in shipping stocks. I own DAC, NMM, GSL, SBLK, CMRE and ZIM. They're all doing well. I'll probably come back to CPLP later on as it has good prospects also once it burns off its lower locked in contract rates. I'm also in LNG shippers (FLNG, TGP) and an oil shuttle shipper (KNOP).

Here is DAC's actual and projected EPS numbers which are about as impressive as I can find - considering its low forward PE of 4.76:

Q1-20 = $1.34
Q2-20 = $1.71
Q3-20 = $1.91
Q4-20 = $2.29
Q1-21 = $2.90 (est) (we'll find out 5/10/21)
Q2-21 = $3.36 (proj)
Q3-21 = $3.58 (proj)
Q4-21 = $3.75 (proj)

If anyone knows of a company with EPS growth numbers better than that with a forward PE less than 5 or 6, please post the company information for us so we can all invest in the company.

With DAC's forward PE of 4.76 compared to a sector median of 24.77, and increasing future EPS projections through the end of this year as shown above, and perhaps into 2022 (the ship building pipeline is pretty empty and it takes 2-3 years to build these ships), I believe that DAC has a long way to increase in price still. In my opinion, it wouldn't surprise me if DAC doubles from here to $120.

I would also like to look into buying a ship builder name but I can't locate some tickers. Can anyone help with that?
@Investor-Still-Learning sector p/e is never been 24 it’s about 14 max!
@docsign I'm not an expert at shipping company PE's, but I refer you to the SA value page for DAC:


It indicates that DAC's forward GAAP PE is 4.76 and the sector median GAAP forward PE is 24.77. If SA is wrong, or if I'm reading it wrong, I'll stand corrected.
@Investor-Still-Learning You are reading it wrong. The sector that DAC is part of is the Industrials sector, one of the S&P 500 eleven sectors. That larger sector has a GAAP forward PE of 24.77. The industry group is Marine, and that is part of the larger Industrial sector. Marine has a much lower forward PE rating.
J Mintzmyer profile picture
Thanks for the effort here.

However, there are some gross errors in terms of industry data references and comp analysis. For instance, the BDI is an index of *dry bulk* spot rates. Totally different sector. It would be like writing an article about an oil company and plotting the prices of corn and sugar.

Your conclusions are solid, but you need to look at the proper comps, i.e. $ATCO $CMRE $GSL $NMM as the biggest 4.

Then use this rate chart for reference to what actually matters for $DAC:


Suggest pulling and editing for proper industry data/comps and resubmitting, could be a solid article then.

DanWest88 profile picture
@J Mintzmyer - you're my Shipping Guru, Man! Thx for everything. I'll be joining your Special Super Secret Club soon I think.

I wrote a similar criticism earlier today, with the same recommendation for the author.


(This is me patting my own back, of course. Hope I don't injure my shoulder!)
@J Mintzmyer nice to see a kind and considerate response when it would have been easy to be dismissive due to the errors. We appreciate you sharing your knowledge and why you’re the #1 pundit in the space.
Ship Brief profile picture
Wrong sector. $DAC owns and operates containerships.

Ref: harpex.harperpetersen.com/...
This guy should look at his own picture of a Danaos ship. Danaos has 64 CONTAINERSHIPS, no bulkers.
Another reason DAC may be significantly undervalued is DAC owns 10 million shares of ZIM stock valued at $75,000 as of 12/31/2020 and since the 1/31/2021 ZIM IPO, has increased in value hovering around $400 million. This is obviously material to DACs $1 billion mark cap. ZIM has a good chance to appreciate even further near term. This is a very valuable asset and will increase EPS substantially in the 1st quarter and perhaps subsequent quarters. It will be interesting how DAC decides to use this asset. For some reason, analysts rarely mention this.
@stephenc Also as far as i remember DAC owns 49.9M in bonds on ZIM that the mature is 2023 but 2 weeks ago ZIM announced early redemption of the debt by end of June
That is my understanding as well. Thank you for mentioning. On top of that, based on ZIM 4th quarter results, supply/demand market conditions, asset light business model (which is a good thing), and digitization of operations, it appears ZIM could be significantly undervalued. Although in business since 1945, new management has turned ZIM into a new company. This could add yet further value to 10 million shares owned by DAC. Don’t forget about the dividend DAC management has been contemplating. A lot of positives. DAC 1st quarter earnings report, conference call, and presentation will be very interesting.
@Krlos Krrera they already paid it off
Sunrise Analysis profile picture
Probably better to compare Danaos' share price to the Harpex or another container charter index than a dry bulk shipping rate index. The debt load has also historically been a massive factor that would skew any correlation, but it's an interesting concept.
This analyst shows how misunderstood the shipping industry is today. Both DAC and CMRE are containership companies. Dry bulk completely different animal.
Joeri van der Sman profile picture
" As you can see, only Costamare can compare to Danaos in terms of marginality. The other players in the market are lagging far behind the two."

That's because CMRE is the only containership company and the only peer.
DanWest88 profile picture
As others have commented here, and while your conclusions may still be somewhat correct, you ARE making a fundamental error in your article thesis.

Danaos Corp owns 65 CONTAINER ships, and ZERO Dry Bulk ships.

If you have any doubts about that, then one or two minutes visiting www.danaos.com/fleet should resolve them.

The BDI HAS shot up recently, but the "intensity" of that rise (around 2.3X since the beginning of the year), is humbled by the HarpEx (Average Container - equivalent metric to the BDI for Bulk), at ~4.4X YTD.

Also, most importantly, the trends, supercycles, macroeconomics, what-have-you are a VERY different set effecting each of these distinct industries.

It might be best to retract this entire article, as it feeds ignorance.

AND: Thank you for the WORK to generate it. It shouldn't be impossible to do an overhaul with what you have, after taking a different look at your premise.
DanWest88 profile picture
@DanWest88 - I certainly agree with your CONCLUSION!

"So I recommend buying DAC ahead of its 1Q report on May 10, 2021."
DeepValueIT profile picture
@DanWest88 I agree with you.
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