A somewhat mysterious reversal of fortunes in stock performance by Connecticut-based dry owner Eagle Bulk Shipping has analysts at Clarksons Securities pitching the share as a bargain buy opportunity.
New York-listed Eagle, which was the top returner of the bulker group in 2022, has followed up that showing with a sector-lagging 13% slide year to date for reasons that appear to puzzle the researchers.
“We see no compelling reason for this underperformance, so we consider it a very appealing buying opportunity,” wrote analysts Frode Morkedal and Even Kolsgaard in a client note on Wednesday.
“The stock has shifted from trading above [net asset value] earlier this year to trading at a 35% discount to NAV. As a result, we believe the stock is now a compelling choice for investors looking to profit from the improving dry bulk market.”
As TradeWinds has reported, Gary Vogel-led Eagle Bulk had paced the dry bulk peer group with a 10% gain during 2022, or a 27% return with dividends considered.
But the stock sold off in the first quarter after its fourth-quarter earnings came in below the guidance the company itself had provided to analysts.
And more recently there has been speculation — first reported in TradeWinds’ Streetwise newsletter — that largest shareholder Oaktree Capital may be looking to sell out of the position it has held for a decade.
A perceived “overhang” in the stock on that basis may be contributing to downward pressure.
In any case, Clarksons sees opportunity.
The freight futures market has priced in a $16,000 per day rate for supramaxes for the remainder of the year compared to Eagle’s net breakeven rate of $12,500 per day, implying annualised earnings per share (EPS) of $4.40, the analysts note.
Every rise of $1,000 per day above that level can raise EPS by $1.30 per share, “making the stock an appealing investment” with a price target of $65 – its estimated NAV.
Eagle shares closed trading at $42.79 on Tuesday on the New York Stock Exchange.
Eagle owns 52 vessels, including 22 Supramaxes and 30 Ultramaxes, with only two vessels lacking exhaust-gas scrubbers.
Eagle’s net debt is at just 18% based on Clarksons’ estimates of current fleet value.
The Stamford-based owner pays out a dividend of 30% of net income or a minimum of $0.10 per quarter, and there is $50m authorised for share buybacks.
“Following the year-to-date sell-off, the stock, which was previously considered relatively expensive, now appears relatively cheap in comparison to asset values,” Clarksons wrote.
