OPEC meetings usually have an effect on oil tanker stocks. With shipping rates heavily dependent on the price of oil, such meetings can sometimes serve as the difference between prosperity and disaster.
Fortunately, in this case, production increases may not hurt the tanker stocks. Between political turmoil in Venezuela and the cancellation of the Iran nuclear deal, the production from two major oil-producing countries has slowed to a trickle. This leaves room for other OPEC countries to compensate for the shortfall, making it unlikely the low oil prices seen in 2016 will return. In fact, this notoriously volatile industry may receive the boost it has long-needed. Freight rates fell by 65% in 2017, which decimated tanker stocks. Now, rates have again begun to rise.
The following three tanker stocks should see a benefit from the revival in freight rates despite OPEC’s decision on production quotas:
Oil Tanker Stocks: DHT Holdings (DHT)
Formed in 2005, DHT Holdings (NYSE:DHT) operates as an independent crude oil tanker company. Based in Bermuda, the company generates revenue from charter and spot market operations.
Like many of its peers, it has lost almost all of its value since the 2008 financial crisis. However, after years of trading in the single digits, the stock could be poised for a partial recovery. Although analysts expect the company to sustain a loss this year, it has earned profits in the previous four years. They also expect profits to come in at 15-cents-per-share in 2019 and 30-cents-per-share in 2020.
Since DHT stock trades at around $4.50-per-share, this places the forward price-to-earnings (P/E) ratio at 30 when measured against 2019 earnings. However, with profits doubling, this could make DHT a compelling bargain even at this P/E. Moreover, the stock has traded at over $8-per-share on many occasions in the middle of the decade. With improved prospects for shipping oil, such prices could easily return.
Such a move would also improve its long-term debt situation. Currently, its $709 million in long-term debt exceeds its $645 million market cap. Fortunately, the company has steadily reduced this debt. The continued debt reduction should also bode favorably for the stock price.
Moreover, the company has set its annual dividend at a sustainable 8-cents-per-share. That does not compare to the $13.60-per-share investors enjoyed in 2008. Still, it produces a dividend yield of about 1.8%, slightly higher than current S&P 500 averages.
Oil Tanker Stocks: Golar LNG Limited (GLNG)
Golar LNG Limited (NASDAQ:GLNG) stands in a unique position in the industry. It became the first company to convert ships to facilitate the shipment of FLNG (floating liquefied natural gas). It also acts as an industry leader in FSRU (floating storage and re-gasification units). This gives GLNG a competitive advantage in that they can ship to destinations that do not require the specialized facilities needed by most LNG shippers.
Such business should also improve the company’s financial picture. The company has sustained years of financial losses. However, analysts expect Golar to return to profitability in 2019. From there, those profits should double in 2020. Analysts expect even faster revenue recovery as 2018 revenues should more than double. Wall Street expects the move higher to continue as estimated revenues rise by nearly 50% in 2019.
Moreover, GLNG has exhibited more stability than shippers such as Nordic American Tanker Ltd (NYSE:NAT) or Frontline Ltd (NYSE:FRO). Both of these stocks have lost over 98% of their value since the financial crisis and remain heavily in debt. Compared to these companies, GLNG stock has stood as a pillar of stability. GLNG is off a little more than 50% from its pre-financial crisis high. It also holds just under $1.1 billion, well below a market cap of around $2.8 billion.
Oil Tanker Stocks: Kirby Corporation (KEX)
Unlike most shipping companies, Kirby Corporation (NYSE:KEX) ships bulk liquid products within the waterways of the United States. It operates five offshore barge and tugboat units, shipping agricultural, chemical and dry-bulk commodities in addition to petroleum-related products.
This domestic niche has given KEX stock something that other tanker stocks lack — consistent profitability. This profitability has given the stock an unusual level of stability for this industry. Unlike most of its peers, KEX stock trades well above levels seen before the financial crisis. Although this equity will see downtrends at times, investors are less likely to see the 90+% drops in the stock price that many tanker stocks have experienced.
Currently, KEX trades below levels seen during the last oil boom. However, surging profits could easily take KEX stock to all-time highs. Net income came in at $2.05-per-share last year on revenue of $2.21 billion. Wall Street predicts profits of $2.96-per-share and a further increase to $3.82-per-share in 2019. Revenue will likely see corresponding increases, rising to an estimated $3.09 billion for this year and $3.32 billion in 2019.
From a valuation standpoint, this takes its forward P/E to 28. This stands above the stock’s 5-year average P/E of 20.6. However, with profits on track to grow over 40% this year, and double-digit growth to remain in place through at least 2021, the profit growth makes KEX stock a buy despite its above-average P/E ratio.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
