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Why It's Smooth Sailing for Deep Sea Freighters on Friday

NEW YORK (TheStreet) -- Stocks in the deep sea freight industry were off to a good start Friday morning, buoyed by news Japan's leading shippers plan to make big investments in the industry. Asian shipping companies, Mitsui O.S.K Lines and Nippon Yusen chief among them, plan to add 90 liquefied natural gas tankers to their fleet over the next six years, an investment worth 1.8 trillion yen ($17.61 billion), according to Reuters.

The prospect of increased intercontinental traffic set off a rally in deep sea freighter stocks stateside. Micro-cap Frontline (FRO - Get Report), fresh off a positive earnings report Wednesday, led the gains, up 12.5% to $3.07. The Bermuda-based shipping company reported a third-quarter net loss of 46 cents a share, beating Yahoo! Finance estimates by a penny.

By market open, Greece-based DryShips (DRYS - Get Report) had surged 6.1% to $3.49, Seaspan Corporation (SSW) was up 0.8% to $21.92, and Nordic American Tanker (NAT) climbed 5.7% to $8.19. The Guggenheim Shipping ETF (SEA) rose 1.1% to $20.08.

TheStreet Ratings team rates DryShips Inc as a Hold with a ratings score of C-. The team has this to say about their recommendation:

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"We rate DryShips Inc (DRYS) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DRYS's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 17.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, DRYS's share price has jumped by 76.62%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • The gross profit margin for DryShips Inc is rather high; currently it is at 55.52%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -15.77% is in-line with the industry average.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Marine industry and the overall market, DryShips Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $48.85 million or 40.58% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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