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Why restructuring concerns weigh down Frontline's stock

Why restructuring concerns weigh down Frontline's stock (Part 1 of 7)

Investing in Frontline: A pureplay crude tanker company

Underperformance

Since the start of 2014, crude tankers have underperformed the broad market as a whole. Frontline Ltd. (FRO) stock fell another 16% on the day the company announced its first quarter earnings for 2014 on May 27, 2014, even though earnings matched analysts’ consensus compiled by Bloomberg, on an adjusted basis to exclude one-off items.

Frontline Fleet ProfileEnlarge Graph

Frontline Ltd.

Frontline is a pure-play crude tanker company that operates VLCCs and Suezmax vessels. These are large vessels that carry crude oil primarily from countries in the Middle East and Africa to the rest of the world.

As of May 1, 2014, the company owned five VLCCs and three Suezmax vessels under the spot market and bareboat charters (through the company’s 83% ownership of Independent Tankers Corporation), 15 VLCCs and five Suezmax leased from a related party, Ship Finance International (SFL), two VLCCs and two Suezmaxes chartered in from third parties, and six VLCCs and Suezmax each under commercial management. Frontline also has two Suezmax vessels under construction as of the date reported.

While Frontline was facing its 16% decline, its crude tanker peers such as Teekay Tanker Ltd. (TNK), Nordic American Tanker Ltd. (NAT), Tsakos Energy Navigation Ltd. (TNP), and Navios Maritime Acquisition Corp. (NNA) didn’t budge as much, suggesting the driver was company-specific.

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