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DryShips Should Find Support from the Dry Bulk Market Recovery

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Mar. 19 2015, Published 2:33 p.m. ET

Dry bulk market recovery and DRYS link

With significant exposure to spot markets, it’s been a tough year for dry bulk shippers like DryShips and peers like Safe Bulkers (SB), Navios Maritime Holdings (NM), Diana Shipping (DSX), and Navios Maritime Partners (NMM), as the BDI has plunged to record lows.

World Maritime News comments that it expects a fundamental and sustainable dry bulk market recovery in the second half of 2015 and throughout 2016, when the total dry bulk market balance could peak at 88%, with peaks during the fourth quarter close to 92%. Further, an improved tonnage balance in 2015–2016 should drive up bulk freight rates.

DryShips forecasts an increase in its fleet portfolio for the next two years. It anticipates that its fleet will increase 5.1% in 2015 and 4.6% in 2016. Plus, the company expects a fleet contract backlog of approximately $380 million through 2017.

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Analyst consensus ratings

DryShips has an analyst consensus “buy” rating of 20% with a target price of $0.89, indicating an upside of 17.1% from the current levels. Meanwhile, peers Safe Bulkers (SB), Navios Maritime Holdings (NM), Diana Shipping (DSX), and Navios Maritime Partners (NMM) have analyst consensus “buy” ratings of 50%, 71%, 30%, and 27%, respectively. Based on the target prices assigned, this indicates an upside of 47.9%, 47.4%, 18.8%, and 31.4%, respectively, from the current levels.

However, industry analysts comment that a crude tanker recovery alone won’t be able to support any recovery in DRYS. The contribution from the dry bulk and offshore segment should support the company and its stock price. The PowerShares DB Oil Fund ETF (DBO) tracks the performance of crude oil.

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