The tanker sector might be trending down, but Diamond S Shipping is still a buy as far as B Riley FBR is concerned.
In a note published on Friday morning, the investment bank's shipping analyst Liam Burke reiterated the Connecticut shipowner's buy rating with a price target of $25.
Diamond S shares, which trades under the symbol DSSI on the New York Stock Exchange, were up $0.42 to $10.28 in late trading on Friday.
"In the near term, DSSI has benefited from increased demand for crude and refined product storage that has moderated through the second quarter," Burke wrote after a conference call with Diamond S.
"As the floating storage inventory is worked down, DSSI should see the longer-term benefit of a healthy spot rate environment through increased global crude consumption coupled with tight capacity."
Both Fearnleys and Clarksons said tankers were feeling pressure, with rates falling off as oil demand recovers on the reopening of major economies from their Covid-19 shutdowns.
Additionally, Evercore ISI's Jonathan Chappell said this week that storing oil at sea is no longer economical.
But many observers say the long-term outlook is solid, with more ships expected to head to the scrapyard due to old age and few newbuilding ships coming into the global fleet to replace them.
Burke argued that declines in floating storage meant higher demand for both crude and oil products and represent a long-term positive for tankers.
He said Diamond S has been taking advantage of improved time charter offers and can use its free cash flow to either reduce debt — which it did by 8% in the first quarter — or buy back shares.
In the past year, Diamond S shares have traded as high as $17.50 and as low as $8.62.
Year-to-date, shares have fallen from a high of $16.86 on 2 January, the first trading day of the year, to $9.85 at the close of Thursday.
