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Investing In Crude Oil Shipping Earnings Growth - DHT Holdings

|Includes: DHT Holdings, Inc. (DHT), FDX, FRO, TK, UPS
DH Tankers

Oil has been getting crushed over the past several months, and the major driver behind the fall in prices is the worldwide oversupply of the natural resource. The Russians, and OPEC continue to pump out the black gold at the same levels when oil was around $100 per barrel. Further, with the Iranian sanctions lifted, more crude is being pumped and added to the massive world inventory. But all this crude oil needs to be shipped to be refined and sent to different ports, and that is where DHT Holdings (NYSE:DHT), the Zacks Bull of the Day, comes into the picture.

This Zacks Rank #1, (Strong Buy) formerly Double Hull Tankers, Inc. operates a fleet of double-hull crude oil tankers on international routes. DHT's modern fleet consists of three Very Large Crude Carriers, two Suezmax tankers and four Aframax tankers. DHT intends to pursue a strategy of providing shareholders with a stable and visible distribution and also position the Company to use its incremental cash flow to fund future growth opportunities.

In their most recent earnings announcement, the company posted year over year increases in Net Revenue (+69.1%), EBITDA (+132.8%), and Net Income (+13.7%). Moreover, management approved the repurchase of up to $50 million of DHT securities. According to the company, "DHT's board of directors and management team believe that DHT' securities - its common stock and convertible senior notes - currently represent an attractive investment opportunity, and repurchasing such securities will likely constitute a part of the company's capital allocation strategy during 2016."

Most importantly, the company extended the time-charters, at higher rates, for three of its VLCC's (Very large Crude Carriers) to major oil companies. Specifically, the vessels Samco Europe, Samco Taiga, and Samco Redwood have been extended for one, two, and two years respectively, at a daily rate of $53,000, $45,000, and $47,300. According to management, "These extensions and new contract secure 2,165 days of time-charter equivalent earnings at a combined value of about $101 million."

Further, according to company policy, DHT increased their quarterly dividend to $0.21 per share (for shareholders as of February 16) to maintain management's policy of paying out at least 60% of ordinary net income in the form of a dividend payment. This $0.21 dividend payment is an increase of 320% from the year ago quarter.

As you can see from the Price and Consensus graph below, the company is expected to see significant earnings growth in 2016.

DHT Price Concensus Price Graph

Increasing Estimates Due to the strong Q4 earnings performance, increased dividend, and the locked in higher rates for their VLCC's estimates for Q1 16, Q2 16, FY 16 and FY 17 have all increased over the past 30 days: Q1 16 rose from $0.33 to $0.40, Q2 15 improved from $0.19 to $0.23, FY 16 jumped from $0.90 to $1.07, and FY 17 rose from $0.66 to $0.90.

Bottom Line

While OPEC, Russia, Iran, and the U.S.A continue to pump out oil above the amount demanded there will continue to be an oversupply of the commodity. This only helps the VLCC companies to move the oil from port to port. Further, with the guaranteed rates locked in for the next 2 years, the company will have a consistent revenue stream.

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