Fundamental stock analysis
After its recent quarterly earnings, DryShips’ (DRYS) stock prices have dropped because of the company’s net loss. However, with industry conditions improving, better balance sheet management by DRYS, narrowing net loss, and a rising revenue investors should be attracted to these significant points.
DRYS has positives like increase in earnings before interest, taxes, depreciation, and amortization (or EBITDA) due to improvement in operations and daily time charter equivalent (or TCE) levels remaining unchanged from the previous quarters, mainly due to the time charter coverage on a majority of its Cape size fleet.
Strategy going forward
DryShips’ shipping fleet is forecasted for strong earnings power in the future on the back of positive developments in the dry bulk and tanker spot markets. DRYS plans to operate its vessels in both dry bulk and tanker on the spot market in order to take advantage of a sustainable recovery in these markets in 2014 and beyond.
DryShips is also trying to maintain the minimum required value to loan ratio. It faced certain challenges in the past to maintain this ratio, but with vessel prices rising due to positive industry developments the situation has improved significantly. Going forward, the company will keep a close eye on factors that need to be monitored in order to identify the direction of the fleet market, and decide its direction accordingly. This includes overall chartering activities, which it expects to increase going forward.
DryShips expects that iron ore production will increase in the next three years, which will increase the demand for transportation. The company sees considerable scrapping potential as more than 8% of both the Cape and the Panamax fleets are over 20 years old. An additional 10% and 12% of the fleets, respectively, are 15–19 years old.
According to company, DRYS reiterates its view that fears over severe oversupply have been overstated. The depressed freight environment experienced in the past several years was more the result of stagnant demand rather than a pure oversupply issue. However, the global economy outlook is normalizing as the global economy outlook improves.
Other peers to watch in the shipping space are Navios Maritime Holdings (NM), Navios Maritime Partners (NMM), Safe Bulkers (SB), and Diana Shipping (DSX). With industry fundamentals seen improving in the upcoming months, the Guggenheim Shipping ETF (SEA) is also an attractive bet for investors.