DryShips' Troubles Make It Deep-Value Stock

DryShips' business is improving, but investors haven't taken note. It's now an interesting value play.
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BOSTON (TheStreet) -- TheStreet's stock model upgraded Greece's DryShips (DRYS) - Get Report to "hold" after its quarterly earnings report.

DryShips is a dry-bulk carrier, transporting iron ore, coal and grain worldwide. As the economy gains steam, DryShips is benefiting. The

Baltic Dry Index

, a measure of global shipping rates, has gained 13% during the past week, a sign that trade is picking up and carriers' pricing power is strengthening.

DryShips swung to a first-quarter profit of $5.7 million, or 1 cent a share, from a loss of $122 million, or $1.12, a year earlier. Revenue declined 1.3% to $194 million. The operating margin remained steady at 33%. DryShips holds $791 million of cash and $2.6 billion of debt, translating to a debt-to-equity ratio of 0.9. DryShips has a drilling-rig segment, which it's planning to spin off and take public. The drilling IPO has been repeatedly delayed.

More on Dryships

DryShips Posts Murky Quarter

Despite the quarterly improvement, shares have fallen 5.5% since DryShips reported results on Tuesday. The company missed analysts' consensus earnings estimate. Uncertainty about the drilling spin-off continues to plague the stock since drilling constituted roughly 41% of quarterly sales. The segment's revenue has been declining over the past few years. In the latest period, it dropped 16% to $80 million.

The well-publicized problems of


(BP) - Get Report



(RIG) - Get Report

have made matters worse, decreasing the likelihood of a successful drilling IPO in the near term. Still, amid pessimism, there is opportunity. DryShips has demonstrated fundamental improvement and its stock is obscenely cheap. It sells for a price-to-projected-earnings ratio of 4.6, a 68% discount to the marine-industry average. Its 0.5 book-value multiple reflects a 55% discount.

Analysts are preaching value. Of those covering DryShips, 11, or 61%, rate its stock "buy," five rate it "hold" and two rank it "sell."

Lazard Capital Markets

offers the loftiest price target, expecting DryShips to more than double to $11.

Deutsche Bank

(DB) - Get Report

forecasts that the stock will gain 96% to $10.

Credit Suisse

(CS) - Get Report


Cantor Fitzgerald

predict that it will appreciate 56% to $8. Institutional investors also emit bullish signals.

Of DryShips' 15 largest shareholders, 12, including

JPMorgan Chase

(JPM) - Get Report


Morgan Stanley

(MS) - Get Report

and hedge fund


, purchased more stock during the fourth quarter. Two held steady and just one lessened its holdings. The bets haven't paid off yet. DryShips is still sputtering along the trough of its one-year chart. On Friday, the stock closed just 7% above its 52-week low. Although uncertainty remains, DryShips appears too cheap to pass up.

-- Reported by Jake Lynch in Boston.