Among the dry-bulk investment crowd, the story behind
has far more to do with its ambitious plan for its offshore drilling venture (some might say "adventure") than it does with the company's eponymous dry-bulk fleet, almost 100% of which it has locked into long-term charters for the rest of the year and beyond.
The singular and controversial CEO, George Economou, has staked the future of the company on the mobile rigs that drill for oil in ultra-deep waters. DryShips already owns two of these vessels and has four on order at a yard in South Korea. To be sure, it's a high-margin business, and so few of the ships exist that demand for their services threatens to outstrip supply.
But the announcement investors have long awaited -- and that DryShips has been promising since before the crash -- remains on standby. Before DryShips can even make due on the $1 billion it owes the Korean yards for two of the four new ships, it needs to borrow the money. And before it can convince a bank to lend it the money, it needs to find an energy explorer willing to rent out the rigs for an extended period. When (or if) DryShips does announce that it has inked a charter contract, analysts and investors expect the stock to bounce.
Word has it that Economou and his crew are in the bidding for a contract to put one of the drillships to work off the coast of West Africa, but so far nothing official has emerged. Back in October,
. November, December, January, February -- more than a month into 2010, and the company's corporate office in Athens remains silent on the matter.
Analysts seem confident that sooner, rather than later, something will happen. "I think they'll definitely get it done," said Natasha Boyden, analyst at Cantor Fitzgerald, who has a buy rating on the stock. The short supply of these kinds of rigs means that one energy company or another will do a deal, she added.
Meanwhile, investors keep waiting as the stock sits under $6 a share, flat on the year.
For the fourth quarter, analysts are calling for DryShips to earn 23 cents a share on revenue of $215 million, according to the Thomson Reuters survey. For 2010 as a whole, Wall Street is targeting a per-share bottom line of 91 cents a share. For the bullish Greg Lewis, the shipping analyst at Credit Suisse, who rates DryShips shares at outperform, that's too low. He's calling for $1.10 a share, good enough for him to peg an $8 price target on the stock.
The story of
has made something of a turn away from dry bulk, as well. Two weeks ago, the company announced its decision to enter the beleaguered container-ship business -- possibly because prices for those types of vessels have fallen so low that Diana's opportunistic management couldn't resist. Diana said it will throw $50 million of its own cash at this new joint venture, and then raise as much as another $300 million in a private placement to buy up to 20 ships.
But investors appeared to react with circumspection to the plan. The stock's value has lost nearly 11% since the announcement of the move, which, the thinking goes, has muddied the waters by making Diana into something less than a pure-play dry-bulk company. Over the long run, though -- as in two or three years, and especially when the world's developed economies come out of their funks and start importing again -- Diana is banking on the effort paying off.
Meanwhile, the company has pursued its stated campaign to acquire good old dry-bulk carriers at a stately pace and expand its fleet by an order of magnitude. The growth opportunities allowed by Diana's famously pristine balance sheet -- it has enough dry powder to buy as many as 10 capesize ships over the next 12 months, according to some estimates -- holds the most promise for nearish-term share-price appreciation. "That's the catalyst for Diana," said Scott Burk, an analyst at Oppenheimer & Co. He has a 12-month price target for Diana's shares of $21.
The consensus among shipping analysts is that Diana, which reports on Feb. 23, will earn 34 cents a share in the fourth quarter, on revenue of nearly $57 million. For 2010, the Wall Street targets stand at $1.59 a share on the bottom line and around $250 million on the top.
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Genco Shipping & Trading
Sure, you can make your own
joke when discussing the dry-bulk outfit founded by Peter Georgiopoulos, the shipping impresario behind the tanker company
. (In the Francis Ford Coppola film, Genco was the name of the olive oil importer founded by Vito Corleone.) But the managers at
Genco Shipping & Trading
have a stand-up reputation in maritime circles, possibly second only to those at Diana.
They'll need all that experience to deal with a balance sheet that pales in comparison to Diana's. Genco's debt load, in fact, means that investors will likely be more comfortable if the company lays off buying any news ships -- using its cash flow, instead, to pay off its loans.
Genco can thank its chartering strategy for producing the cash flow needed to heal its balance sheet, according to Oppenheimer's Burk. The company, which has some 35% of its fleet finding work on the spot market as opposed to fixed into long-term charters, benefited from the strong run-up in spot rates in the fourth quarter. (DryShips and Diana, by comparison, have fewer than 10% of their ships exposed to the spot market for 2010.)
If investors think rates will hold up over the next several months, Genco shares should cooperate by heading north. For Credit Suisse's Greg Lewis that makes Genco the "beta name of the group" -- the stock with the highest risk/reward. He has a price target on the shares of $25, below Burk's $28.
On average, analysts are calling for Genco to report earnings of $1.05 a share in the fourth quarter, on revenue of about $95 million. For 2010, the consensus forecast calls for a profit of $3.54 a share, on revenue of $364 million.
Navios Maritime Holdings
Somewhat like Diana Shipping,
has gone shopping. The company has a whopping 22 capesize ships coming into its fleet over the next two years, says Cantor Fitzgerald's Boyden.
Just on Feb. 2, Navios took delivery of a brand new jumbo carrier, the
, weighing in at 170,000 deadweight tons, and placed an order for another 180,000-tonner with a South Korean shipyard.
For Boyden, that makes Navios a serious "growth story." She rates the company's stock a buy, with an $8 price target -- about 31% above the closing price on Wednesday. Investors, by and large, appear to have made a smiliar call: Shares of Navios have paced the sector, gaining 23% in the fourth quarter and 2% year-to-date. Most other dry-bulk stocks have declined since New Year's Day.
Analysts expect Navios to post a profit of 14 cents a share, with revenue of $140 million, in the fourth quarter. Full-year 2010 estimates amount to $1.04 a share on the bottom line and $680 million on the top.
has a heavy debt load and broad exposure to spot rates.
The risk inherent in these two facts has made Excel's stock one of Wall Street's least favorite dry-bulk names. Hold and sell ratings abound on the company's shares. Add in the fact that its stock is more expensive than Genco's (it trades at 21.4 times 2010 estimates as of Wednesday's close, compared to a Genco multiple of 5.8), and the situation becomes a little clearer.
Other pitfalls may lay in wait for Excel beyond the necessary balance-sheet "healing," as Oppenheimer's Burk puts it. At some point in 2010, Excel must also face up to an aging fleet, says Boyden, who has a sell rating on the stock and a price target of $4 -- 33% below the stock's close on Wednesday. The company will need to find a way to sell a number of these older vessels, or have them scrapped, and unless the company replaces them with newer ships, its fleet will shrink.
The company does have six capesizes on order, though some analysts expect only two such ships to ever hit the water. The other four were commissioned at a greenfield shipyard that will probably never be built.
Analysts predict fourth quarter earnings for Excel of 3 cents a share, on revenue of $96 million. For 2010, the targets are 28 cents a share, on revenue of $380 million.
-- Written by Scott Eden in New York
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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.