Jefferies raises tanker estimates on strengthened earnings power

November 29, 2022 3:50 PM EST
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Price: $13.94 -0.92%

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Jefferies raised its price targets on tankers in a note on Tuesday, stating the sector's earnings power has strengthened materially.

The firm remains Buy-rated across all tanker stocks in its coverage universe and raised its target for Ardmore Shipping (NYSE: ASC) to $17 from $16, for DHT Holdings (NYSE: DHT) to $12 from $11, for Euronav (NYSE: EURN) to $21 from $20, Frontline (NYSE: FRO) to $17 from $16, for International Seaways (NYSE: INSW) to $55 from $53, for Nordic American Tanker (NYSE: NAT) to $4.50 from $4, for Scorpio Tankers (NYSE: STNG) to $65 from $60, for Teekay Tankers Ltd (NYSE: TNK) to $44 from $40, and for TEN Ltd (NYSE: TNP) to $26 from $25.

"Crude tanker rates have jumped to new highs last seen in 2008, aside from a brief period in 2020 when oil companies scrambled to secure tankers for floating storage. The tanker sector has been tightly wound for the past several months, leaving little flexibility typically reserved for supply/demand shocks. With charterers now actively booking ships against a framework of the Russian oil ban into Europe, rates have gapped higher. The versatile Suezmax and Aframax tankers are earning in excess of $100,000/day. While it remains to be seen how the price cap on Russian exports will ultimately play out, what is clear is that the tanker fleet is becoming stretched and traveling longer distances," wrote Jefferies analyst Omar Nokta.

He also explained that product carriers remain strong on high refinery profitability and throughput while the firm is raising its estimates for Q4 and 2023, with mid-size tankers as best positioned to capitalize on the continually shifting trading patterns.

"We see strong earnings spreading across all segments. We are raising our 4Q VLCC rate forecast to $72,500/day, up from $60,000/day, and raise our 2023 forecast to $57,500/day, from $50,000/day. We see 1Q 2023 as the next peak in tankers, as many of the latest spot fixtures are filtering into the January earnings period," Nokta added. "Tanker equities are currently valued at a free cash flow yield of 25% on 2023 earnings. We find this quite attractive as the majority of tanker companies have highlighted return of capital as the key priority going forward."

By Sam Boughedda

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