With earnings season on the horizon and crude tanker rates still in the doldrums, Jefferies' Randy Giveans lowered his expectations for the sector on Friday.
The Houston-based analyst cut the target price and earnings per share (EPS) for seven tanker owners.
"We are reducing our 2H20 [second half of 2020] EPS estimates and 2021 EPS estimates for the crude tanker companies under coverage as crude tanker spot rates continue to be under pressure due [to] the pace of recovery of global crude demand not being sufficient to rapidly clear existing inventories," he wrote in a note published on Friday morning.
"As such, inventory de-stocking will continue to overhang the sector in coming quarters and will put downward pressure on tonne-mile demand."
In the note, he lowered DHT Holdings' target price from $7.50 to $6.50 per share and its second-half EPS from $2.04 to $1.87.
Euronav's target price was dropped to $11 from $13 and EPS from $2.57 to $2.25.
Frontline's target price was dropped to $9 from $10 and EPS from $2.65 to $2.45, while Nordic American Tankers' price was rolled back from $4.50 to $3.50 and EPS from $0.55 to $0.47.
The largest target price changes were made to International Seaways and Teekay Tankers, with both falling by $4. Expectations for International Seaways is now at $26, with EPS forecasted at $5, down from $5.69.
Teekay Tankers' target price is now $20, while its EPS expectation is $5.08, down from $6.03.
Tsakos Energy Navigation had the second-most severe cut, falling from $14 to $11, with its EPS expectation lowered by nearly 50 cents to $2.58.
All the companies retained their buy ratings, save Nordic American Tankers, which Giveans still considers a hold.
Rates stay low
On Friday, weighted average time charter equivalents as assessed by the Baltic Exchange fell across the three crude tanker asset classes.
VLCCs fell off after showing promise over the last week, falling from $5,013 per day on Monday to finish the week at $3,399 per day.
Suezmaxes continued their run over below zero rates that began on 12 October, falling another $349 to $794 per day.
Aframaxes, which had occasionally seen gains while the larger ships continued to languish, dropped $327 over the course of the week to finish at $1,063 per day.
The third quarter is traditionally weak for crude tankers, but rates have been under additional pressure due to demand destruction from the coronavirus pandemic.
Both Giveans and B Riley analyst Liam Burke believe the sector will strengthen in the coming months, given an expected recovery in demand, plus a low orderbook.
"It may be difficult to look past a seasonally low [third quarter] that also saw rate pressure caused by a slow coronavirus-driven global economic recovery, but sector fundamentals remain strong, in our view," Burke said in a note.
"With strong balance sheets and solid cash positions ... operators should be in strong positions to get through this period of soft short-term demand."
