What Frontline Expects for 2017



Frontline’s view

According to a Reuters report, Frontline (FRO) “expects strong demand for its vessels at the start of 2017 and could benefit from oil producers’ pact to cut output if it forces Asian buyers to go further afield for supplies.”

According to the report, VLCC (very large crude carrier) rates have doubled since October, reaching ~$70,000. These rates are far above Frontline’s break-even rate of $22,000. Frontline has 22 VLCCs in its fleet of 57 tankers. VLCCs make up 91% of DHT Holdings’ (DHT) fleet. Euronav’s (EURN) 29 VLCCs make up 57% of its total fleet. Nordic American Tankers (NAT) does not operate a single VLCC, and Tsakos Energy Navigation (TNP) has very few VLCCs in its fleet.

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Revenue and earnings estimates

Wall Street analysts estimate that Frontline’s revenue will be ~$132 million in the fourth quarter, compared with $157 million in 3Q16 and ~$123 million in 4Q15. As revenue is expected to be higher year-over-year, EBITDA (earnings before interest, tax, depreciation, and amortization) are estimated to higher as well. Analysts expect 4Q16 EBITDA to be $68 million, compared with $65 million in 3Q16 and $66 million in 4Q15.

For fiscal 2016, analysts expect Frontline’s revenue to be $677 million—96% higher than the 2015 revenue of $345 million. The 2016 EBITDA estimate for FRO stands at $365 million, higher than 2015’s EBITDA of $228 million. After rising in 2016, Frontline’s 2017 revenue and EBITDA are expected to fall.

Analysts’ recommendations

According to Reuters, the consensus recommendation on Frontline is 2.9, which means “hold.” Currently, seven analysts give recommendations on Frontline. Of these, none have given it a “strong buy,” but one analyst has given it a “buy.” The remaining six analysts have given the company a “hold” recommendation. The consensus target price is $8.10, which implies an upside of 12%. If you’re interested in a broad exposure to the industrials sector, you could invest in the SPDR Dow Jones Industrial Average ETF (DIA).


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