DryShips Inc.
(NDAQ: DRYS) had a spectacular run last year when shipping prices
soared for dry bulk shipments. Many investors now believe that the
market may see another steep run-up as dry bulk shipping prices have
again begun to rise while recent earnings from the sector clearly
outperformed. Moreover, consolidation within the sector has helped to
drive up the prices of all the players in the market. DryShips is one
of the cheapest stocks in the sector that holds great promise - is now
a time to buy?
The dry bulk shipping industry’s earnings is dependent on a
combination of its spot rates and long-term leases. Spot rates spiked
last year when they rose from $80,000 to around $190,000 on soaring
demand. The demand leveled off along with the rest of the market,
however, during the end of last year and beginning of this year. Now,
prices appear to be on the rebound as rates have reached $120,000 so
far this year (view chart). This is great news for bulk dry shippers like DryShips who have large fleets of vessels.
DryShips is expecting to earn $9.55 per share in 2007, which means
that it is trading at just 8.1x earnings while many other companies in
its industry are trading closer to 20x earnings. Even better, the
company’s forecasted $18.18 per share earnings in 2008 mean that it is
trading at just 4.2x forward earnings for this year! DryShips stock has
risen around 35% since January of this year while it has only revised
its estimates upwards. The company remains one of the cheapest stocks
in the industry despite its recent moves upward.
There is also a catalyst at work within the industry. Greek brybulk
shipper Excel Maritime Carries, Ltd. (EXM) announced its plan to buy
Quintana Maritime Limited (QMAR) in January, which fueled M&A
rumors across the industry. The chairman and controlling shareholder of
Excel also predicted further consolidation looming in the sector as
valuations remain low and future expectations remain high. DryShips
remains one of the largest, but cheapest, companies in the industry
meaning that it could become a target for a merger. Again, this is good
news for the company that could be the catalyst needed to jump its
share price.
In the end, the dry bulk shipping industry slowed down after its
spectacular rise in 2007, but many of the fundamental factors behind
the rise are still in place. Emerging markets and China are still
growing while the economies outside of the U.S. appear to be making
headway. DryShips remains one of the best performing and cheapest
stocks in the industry that may be worth a second look. Combined, these
factors make DRYS a stock worth watching over the next few months!
Related Companies
Paragon Shipping Inc. (PRGN)
FreeSeas Inc. (FREE)
Euroseas Ltd. (ESEA)
Quintana Maritime Limited (QMAR)
OceanFreight Inc. (OCNF)
Navios Maritime Holdings Inc. (NM)
Excel Maritime Carriers Ltd. (EXM)
Diana Shipping Inc. (DSX)
Navios Maritime Partners LP (NMM)
Star Bulk Carriers Corp. (SBLK)