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Why Genco Shipping & Trading (GNK) Is Up Today

Stocks in this article: GNK

NEW YORK (TheStreet) -- Genco Shipping & Trading (GNK) is soaring after it paid an interest payment owed on its convertible debt.

By midmorning, shares had spiked 17.7% to $1.46. Trading volume of 2.5 million had exceeded its three-month daily average.

On Thursday, the deep-sea freighter filed an 8-K form with the SEC, informing that it had made its scheduled semi-annual interest payment of around $3.1 million originally due Feb. 18 which was owned on its 5% convertible senior notes due August 15, 2015.

The payment comes as relief after the company disclosed last month that it had entered into a limited waiver of default on that loan agreement but that under the terms of the indenture, a failure to pay interest did not constitute a default until a grace period of 30 days expires (March 21).

The New York-based business suffered a sell-off on Thursday after The New York Post reported that the shipping company would soon file for Chapter 11 bankruptcy protection. The newspaper cited an unnamed person familiar with the situation but has not disclosed its source. A spokesperson for Genco Shipping & Trading has yet to respond to a request for comment.

However, the interest payment has restored confidence in a turnaround. In its filing, the company added that it "continues to be in discussions with representatives of its secured lenders and certain holders of the Notes concerning a potential restructuring of its indebtedness. The company does not intend to provide updates or details of the restructuring discussions."

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TheStreet Ratings team rates GENCO SHIPPING & TRADING as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate GENCO SHIPPING & TRADING (GNK) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity and generally disappointing historical performance in the stock itself."

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

  • Currently the debt-to-equity ratio of 1.63 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.09, which clearly demonstrates the inability to cover short-term cash needs.
  • 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, GENCO SHIPPING & TRADING's return on equity significantly trails that of both the industry average and the S&P 500.
  • GNK's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 46.55%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • GENCO SHIPPING & TRADING has improved earnings per share by 10.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GENCO SHIPPING & TRADING swung to a loss, reporting -$3.48 versus $0.72 in the prior year. This year, the market expects an improvement in earnings (-$3.45 versus -$3.48).
  • The net income growth from the same quarter one year ago has exceeded that of the Marine industry average, but is less than that of the S&P 500. The net income increased by 8.8% when compared to the same quarter one year prior, going from -$38.42 million to -$35.03 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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