Outlook for dry bulkers
For the full year 2015, dry bulk trade is expected to grow by 2% with a projected 2% decline in coal trade, 3% growth in iron ore trade, 1% growth in grain trade, and 2% growth in total minor bauxite, as per a recent study by Clarkson.
For fiscal 2016, global GDP (gross domestic product) is estimated to grow at 3.8%, up 50 basis points driven by low oil and raw material prices. Higher economic activity translates to higher demand for other dry bulk materials such as iron ore. As a result, dry bulk trade is likely to grow at a higher pace in fiscal 2016.
Clarkson predicts an uptick in demand for coal and bauxite due to stock depletions in China. Further export expansion and increased iron ore production in Brazil is likely to facilitate demand going forward. This is positive for shipping companies including Navios Holdings (NM), Diana Shipping (DSX), Golden Ocean Group (GOGL), Star Bulk Carriers (SBLK), Scorpio Bulkers (SALT), Dryships (DRYS), and Navios Maritime Holdings (NMM). It also bodes well for the Guggenheim Shipping ETF (SEA) and the broader iShares Transportation Average ETF (IYT).
If dry bulk demand picks up, Star Bulk Carriers (SBLK) with its large fleet would be in a position to capitalize on the upswing. On the supply side, dry bulk fleet size is estimated to be constrained for 2016 and beyond due to increased demand from other maritime sub-industries.
Wall Street sees an upside potential of 65%
Stifel Nicolaus maintained a “buy” rating for SBLK on September 5, but lowered its target price by $0.50 to $4.50. In July, Jeffries, while maintaining its “buy” rating, lowered its target price from $6 to $5. Out of the ten analysts on Wall Street covering the stock, six have rated Star Bulk as a “buy” and four have rated it as a “hold.” The stock currently trades at $2.41 and has a mean target price of $3.98 for an upside potential of 65%.