Does Navios Partners’ Current Price Capture Its Risks and Returns?
Companies operating in the dry bulk space are highly cyclical and capital-intensive. These companies also have varying degrees of financial leverage. Companies in the industry are best valued and compared using EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization).
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Stock could have an upside
Navios Maritime Partners (NMM) is trading at a one-year forward EV-to-EBITDA of 6.8x. After venturing into the container segment, its average forward EV-to-EBITDA has been 9.1x. Its historical trading range has been 5x to 11.3x.
Wall Street analysts’ estimates for NMM’s EBITDA are $157 million and $156 million for 2015 and 2016, respectively, as compared to $156.9 million for 2014. This is despite the addition of two container vessels in the second half of 2014 and one container vessel in 2015. This implies that estimates are already factoring in a downside related to the re-chartering of contracts at lower prices.
NMM also has low operating expenses and low leverage, and it is diversifying away from risk in the weak dry bulk market. Compared to Navios Partners, Navios Maritime Holdings (NM) has a forward EV-to-EBITDA multiple of 17.7x. Ship Finance International (SFL) is trading at a forward EV-to-EBITDA of 10.4x. DryShips (DRYS) is trading at a low multiple of 2.4x EV-to-EBITDA. Due to low leverage in the downturn, Diana Shipping (DSX) is trading at a high EV-to-EBITDA multiple of 39.5x.
The SPDR S&P Metals and Mining Index (XME) gives investors exposure to the diversified metals and mining space. NM and NMM collectively form 5.1% of SEA’s holdings.
The Yorkville High Income MLP ETF (YMLP) also provides exposure to NMM, and the stock makes up close to 6% of the ETF’s holdings.
To learn more about this industry, visit our Dry Bulk Shipping page.