JP Morgan has initiated coverage of Greek-owned Navios Maritime Containers with a bullish outlook, citing upside potential driven by well-timed market entry.
Chairman and chief executive Angeliki Frangou placed the boxship player under the Navios Maritime Holdings umbrella in May 2017 with a $113m swoop of Rickmers Maritime's 14 ships.
"We believe it's an interesting alternative for investors looking at the container shipping sector, as it has an underleveraged balance sheet, high operating leverage to a recovery and deep valuation discount to its peers," analyst Noah Parquette wrote in a note to clients.
The company's stock has jumped 57% to $3.04 by mid-morning.
Parquette began coverage with an overweight rating, noting the relatively young ships with an average age of 9.5 years were bought at just above scrap prices.
"Subsequent acquisitions were done during a deep downturn in container shipping, so the company's cost basis low and the balance sheet is moderately leveraged versus some of its peers," he said.
The company had about $219m in debt against $17m in unrestricted cash and securities at the end of 2018.
Navios Containers' earnings per share should rise to $0.86 this year and $2.98 in 2021 from $0.53 last year, thanks to limited equity outlay allowing for healthy operating leverage, he said.
Still risky
Parquette notes that the boxship sector still has its supply-demand risks with rates "almost impossible to predict" and high exposure to US-China trade tensions.
He also said that Frangou's management of affiliates under Navios Holdings could present conflicts of interest.
Nonetheless, he assigned a $9 price target to the stock for 2019, expecting fuel cost savings as a result of IMO 2020 slow-steaming.
