Valuations of shipping stocks still inexpensive; Jefferies bullish on these Wall Street shares

After being bruised and beaten in the previous year owing to the pandemic and a global lockdown, the shipping industry is recovering steadily.
(Image: REUTERS)

After being bruised and beaten in the previous year owing to the pandemic and a global lockdown, the shipping industry is recovering steadily. Last week, the Baltic Dry Index hit an 11-year high of 2,788, up 300% on-year basis from April 2020 and the highest since October 2010, global investment bank Jefferies said in a recent report. Owing to the improvement in the shipping industry, Jefferies said it has increase NAV estimates and raised price targets for all dry bulk companies under its coverage. 

“The Jefferies Shipping Index was up 4.2% last week, and is up 44.6% year-to-date and is up 8.3% on-year basis,” Jefferies said in a recent report. Analysts at Jefferies believe that the current state of the shipping market has helped keep valuations low and attractive for entry opportunities. They added that for the tanker companies, rates are likely to remain relatively weak during the first half of 2021, but a much-improved rate environment is expected in the second half as global demand, crude oil production, and refinery utilization increases.

Among tanker companies listed on Wall Street, Jefferies has a ‘buy’ rating on six and a ‘hold’ rating on two. 

Double Hull Tankers Holdings has a ‘Buy’ rating with a target price of $7 per share. DHT Holdings share price is down 28% in the last one year, still recovering after the sharp correction seen in April last year. Currently, the stock trades at $5.76 per share, translating a 21.5% upside to the target price.

Euronav NV, an international shipping enterprise is also on the ‘buy’ list. In the last 12 months, the stock has dropped 31% to now trade at $8.28 per share. The target price on Euronav NV is of $11 apiece, implying a 32% upside.

Teekay Tankers share price has tanked 42% since April last year and has been trading largely flat since August 2020. Now the stock trades at $13.49 apiece. Jefferies has a target price of $18 per share on the stock.

Tsakos Energy Navigation has a similar story. The stock is down 57% from April 2020 and most of those losses came till September last year, after which the stock has traded flat to now sit at $8.89 per share. The target price of $11 implies a 24% upside from the current price.

Ardmore Shipping Corporation also has a ‘Buy’ from Jefferies. The stock price is down 48% since last year but had earlier managed to recover some losses. Ardmore Shipping reached a high in March this year before once again correcting from the highs. Jefferies has a $6 apiece target on the stock, up from its current price of $3.87 per share.

Lastly, it is Scorpio Tankers where Jefferies is bullish. The firm is down 31% from its April 2020 highs and has resumed an up-move since November last year, gaining 100% so far. The stock is trading at $17.71 per share, with a target price of $20 apiece.