Why It's Smooth Sailing for Deep Sea Freighters on Friday

NEW YORK (TheStreet) -- Stocks in the deep sea freight industry were off to a good start Friday morning, buoyed by news Japan's leading shippers plan to make big investments in the industry. Asian shipping companies, Mitsui O.S.K Lines and Nippon Yusen chief among them, plan to add 90 liquefied natural gas tankers to their fleet over the next six years, an investment worth 1.8 trillion yen ($17.61 billion), according to Reuters.

The prospect of increased intercontinental traffic set off a rally in deep sea freighter stocks stateside. Micro-cap Frontline (FRO), fresh off a positive earnings report Wednesday, led the gains, up 12.5% to $3.07. The Bermuda-based shipping company reported a third-quarter net loss of 46 cents a share, beating Yahoo! Finance estimates by a penny.

By market open, Greece-based DryShips (DRYS) had surged 6.1% to $3.49, Seaspan Corporation (SSW) was up 0.8% to $21.92, and Nordic American Tanker  (NAT) climbed 5.7% to $8.19. The Guggenheim Shipping ETF  (SEA) rose 1.1% to $20.08.

TheStreet Ratings team rates DryShips Inc as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate DryShips Inc (DRYS) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

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

  • DRYS's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 17.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, DRYS's share price has jumped by 76.62%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • The gross profit margin for DryShips Inc is rather high; currently it is at 55.52%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -15.77% is in-line with the industry average.
  • 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, DryShips Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $48.85 million or 40.58% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

TheStreet Ratings team rates Seaspan Corp as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate Seaspan Corp (SSW) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."

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

  • Powered by its strong earnings growth of 4100% and other important driving factors, this stock has surged by 34.72% over the past year, outperforming the rise in the S&P 500 Index during the same period. Although SSW had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • Seaspan Corp reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, Seaspan Corp turned its bottom line around by earning $0.73 a share vs. -$2.07 a share in the prior year. This year, the market expects an improvement in earnings ($0.91 vs. $0.73).
  • Net operating cash flow has slightly increased to $89.88 million or 9.58% when compared to the same quarter last year. Despite an increase in cash flow of 9.58%, Seaspan Corp is still growing at a significantly lower rate than the industry average of 62.75%.
  • The debt-to-equity ratio is very high at 2.25 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, SSW's quick ratio is somewhat strong at 1.13, demonstrating the ability to handle short-term liquidity needs.

TheStreet Ratings team rates Frontline Ltd as a Sell with a ratings score of D-. The team has this to say about their recommendation:

"We rate Frontline Ltd (FRO) 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 unimpressive growth in net income, poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 394% when compared to the same quarter one year ago, falling from -$24.35 million to -$120.28 million.
  • The gross profit margin for Frontline Ltd is currently extremely low, coming in at 11.80%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -99.22% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$17.16 million or 150.33% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 36.32%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 755.55% compared to the year-earlier 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.
  • Frontline Ltd has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Frontline Ltd continued to lose money by earning -$1.03 a share vs. -$6.79 a share in the prior year. For the next year, the market is expecting a contraction of 61.2% in earnings (-$1.66 vs. -$1.03).

TheStreet Ratings team rates Nordic American Tankers LTD as a Sell with a ratings score of D+. The team has this to say about their recommendation:

"We rate Nordic American Tankers LTD (NAT) 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, weak operating cash flow, poor profit margins and generally disappointing historical performance in the stock itself."

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

  • 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 Oil, Gas & Consumable Fuels industry and the overall market, Nordic American Tankers LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to -$4.10 million or 31.72% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The gross profit margin for Nordic American Tankers LTD is currently extremely low, coming in at 8.94%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, NAT's net profit margin of -30.48% significantly underperformed when compared to the industry average.
  • NAT has underperformed the S&P 500 Index, declining 18.92% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • Nordic American Tankers LTD has improved earnings per share by 34.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, Nordic American Tankers LTD continued to lose money by earning -$1.38 a share vs. -$1.53 a share in the prior year. For the next year, the market is expecting a contraction of 11.6% in earnings (-$1.54 vs. -$1.38).
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