B Riley FBR has rolled out more coverage in the shipping sphere – this time in the dry cargo sector – with bullish calls on three well-known names: Eagle Bulk, Scorpio Bulkers and Genco Shipping & Trading.
Recently hired equity analyst Liam Burke has ‘buy’ recommendations on all three names with price targets of $8.50, $9.50 and $22.00 respectively.
“The underlying demand for commodities continues to grow steadily while existing capacity remains relatively tight with an aging industry fleet,” said Burke.
On Eagle Bulk, Burke said the shares remain “attractively priced” even after a solid year-to-date run.
“Eagle’s concentrated strategy of operating within a tight segment of the bulk shipping market, supported by its fleet of supramax and ultramax vessels, enables the company to capture a wide range of commodity shipments while managing an increasingly efficient and cost-effective fleet as it continues to reduce its fleet age and vessel size,” he said.
“We believe that Eagle is well positioned in an environment of increasing rates supported by steadily growing global GDP and lower shipyard output.”
On Scorpio Bulkers, he said the company was “well positioned” to capitalize on favorable industry supply and demand dynamics.
“It is a cost-effective operator with a very young fleet that is operating in an environment in which older vessels will be at an extreme cost disadvantage and where the supply of available vessels is tightening due to lower shipyard output and increased scrap rates,” said Burke.
“With a strong demand profile supported by high-quality assets, we expect Scorpio’s revenue growth and margin profiles to improve significantly, which should translate into strong free cash flow generation.”
On Genco Shipping & Trading, Burke said the shares have “underperformed the market” despite a positive fundamental outlook.
“With a diversified fleet to capture value in both major and minor commodity end markets, we believe that Genco is well positioned for steadily increasing time charter equivalents (TCEs) to drive strong operating leverage and free cash flow,” he said.
Burke added that Genco continues to redirect its fleet by opportunistically investing in high-return assets, while divesting of areas that are not core to management's strategy.
“The company has a strong balance sheet to provide the flexibility to create shareholder value through selective investments in its fleet,” he said.
