Scorpio Bulkers (SALT) Stock Tanks on Rating Downgrade

Scorpio Bulkers (SALT) stock is diving in afternoon trading on Wednesday, following a downgrade to 'hold' from 'buy' at Deutsche Bank this morning.
By Rachel Graf ,

NEW YORK (TheStreet) -- Scorpio Bulkers (SALT) - Get Report stock is lower by 21.74% to 90 cents on heavy volume in afternoon trading on Wednesday, after a downgrade to "hold" from "buy" at Deutsche Bank this morning.

The firm lowered its price target to $1 from $3 on the stock.

Deutsche Bank anticipated an improvement in dry bulk rates, which has not occurred, the firm said in a note.

"And based on conversations we've had with several industry contacts, we believe a number of dry bulk companies are contemplating asset sales to raise liquidity, lower daily cash burn, and reduce capital commitments," Deutsche Bank added.

An excess of tonnage "for sale" will likely weigh on asset and equity values, and could result in "breaches in loan-to-value covenants," which might deplete cash and necessitate further dilutive actions, the firm said.

Based in Monaco, Scorpio Bulkers provides transportation services of dry bulk commodities. The company aims to acquire, own and operate a fleet of medium-sized dry bulk carriers.

About 8.37 million shares of Scorpio Bulkers have been traded so far today, far above the company's average trading volume of roughly 1.24 million shares.

Separately, TheStreet Ratings team rates SCORPIO BULKERS as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

We rate SCORPIO BULKERS (SALT) a SELL. This is driven by a number of negative factors, 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 disappointing return on equity and generally disappointing historical performance in the stock itself.

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

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Marine industry and the overall market, SCORPIO BULKERS's return on equity significantly trails that of both the industry average and the S&P 500.
  • SALT'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 73.87%, 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.
  • SCORPIO BULKERS reported significant earnings per share improvement 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, SCORPIO BULKERS reported poor results of -$0.81 versus -$0.03 in the prior year. This year, the market expects an improvement in earnings (-$0.28 versus -$0.81).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Marine industry. The net income increased by 4.5% when compared to the same quarter one year prior, going from -$18.91 million to -$18.05 million.
  • Net operating cash flow has significantly increased by 68.46% to -$5.31 million when compared to the same quarter last year. In addition, SCORPIO BULKERS has also vastly surpassed the industry average cash flow growth rate of -83.99%.
  • You can view the full analysis from the report here: SALT

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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