DryShips Gets Evil Eye from Morgan Stanley

NEW YORK (TheStreet) -- DryShips (DRYS) stock lost 5% Monday after Morgan Stanley (MS) downgraded the name, arguing that DryShips' recent decision to purchase a dozen oil tankers for nearly $800 million was a bad idea.

"The transaction significantly changes DryShips' asset profile -- in a negative way, in our view," Morgan Stanley shipping analyst Ole Slorer wrote in a research note Monday. He cut his rating to underweight from overweight and removed his price target on the stock.

"We believe it has become difficult to value DryShips in light of its recent move," Slorer went on.

>>Where Will DryShips Stock Trade in 2011?

DryShips CEO George Economou has for years been criticized for running his company as a kind of adjunct to his private fleet rather than as a discrete, publicly traded entity. A general lack of transparency has made some investors wonder if conflicts of interest might exist between DryShips and the private fleet of commercial vessels that Economou personally owns, which operates under the name Cardiff Marine.

In an interview with the Financial Times in September, Economou made asurances that transparency at DryShips would be heightened, and that he had sworn off the kinds of murky deals between DryShips and Cardiff that had caused rancor in the past. But, in his note Monday, Slorer said DryShips' oil-tanker purchase -- 12 ships currently on order with the Samsung Heavy Industries shipyard in South Korea -- has reignited risks associated with potential conflicts of interest.

Cardiff Marine has 12 ships on order at the Samsung Heavy Industries shipyard in South Korea, according to Slorer. In his note, he said the DryShips purchase "matches" the ships Cardiff ordered from Samsung.

Company executives couldn't immediately be reached by TheStreet for comment, but rumors of self-dealing in the transaction led DryShips CFO Ziad Nakhleh to deny the charges publicly last week in an interview with the shipping-industry trade newspaper, Tradewinds.

Morgan Stanley's Slorer also has a pessimistic view of the direction of the maritime crude-oil transport business. He doesn't see the market for oil tankers bottoming out until 2012 and estimates that Economou overpaid for the vessels by about $50 million.

Shares of Athens-based DryShips were trading Monday afternoon at $5.21, down 28 cents, or 5%, on volume of nearly 28 million shares. The average daily volume of DryShips stock trading is 17.2 million shares.

-- Written by Scott Eden in New York

>To contact the writer of this article, click here: Scott Eden.

>To follow the writer on Twitter, go to http://twitter.com/ScottEden.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

More from Stocks

Tesla Model 3 Delivery Time Falls, but Will It Help the Stock?

Tesla Model 3 Delivery Time Falls, but Will It Help the Stock?

Baidu Stock Plummets After COO Qi Lu Resignation

Baidu Stock Plummets After COO Qi Lu Resignation

18 Top Stocks Hedge Funds Own That Goldman Sachs Thinks Will Keep Outperforming

18 Top Stocks Hedge Funds Own That Goldman Sachs Thinks Will Keep Outperforming

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

One Chart on Global Trade Conditions Should Make You Worried About Stocks

One Chart on Global Trade Conditions Should Make You Worried About Stocks