There's been a lot of talk on the board about Q2 EPS for FREE. What matters isn't so much EPS as does free cash flow with shippers. EPS can vary a considerable amount due to depreciation & amortization. This charge is a non-cash charge whose exact value is determined by FREE management.
What we care about is the cash flow in the company and if the compay is generating positive free cash flow net of principal debt repayments. Last QTR, for example, FREE generated significant free cash net of debt payment.
I contend that this is the metric we should evaluate FREE (and other shippers by) instead of EPS.
Yup especially given it closed on Friday at $1.02...that's only 3% to sub-$1.00!
If BHSI continues its descent and wider markets continue to retrace, there's a 95% chance of sub-$1 and at least a 50:50 chance of us seeing sub-$0.90....for this scenario I've indicated targets for BHSI of 1000, DJIA 8900 and FREE to $0.85.
If wider markets go into another 2008-09'style meltdown (i.e. we re-test the March 2009 lows) then I'd expect FREE to re-test its own lows.
And its got nothing to do with FREE's CURRENT fundamentals...just increased uncertainty about its FUTURE revenue levels and Mrs Market having her wicked way with us.
HOWEVER, there's still a reasonable chance of a bounce in the BHSI from here and also some stabilisation in the wider markets into the Q2 reporting season...all in all makes FREE a tentative buy for me at sub-$1.05...but I'd be scaling in from here.
Just my opinions, dyor
Yes, FCF is very useful for comparing shippers and also comparing peformance across all companies and all sectors.
But FREE's discounted FCF should have the sp well above $2.50 and racing towards $5.
So what's going wrong?
[very tentative buy because lots of caveats; read other posts]
People are concerned the ships are on short term charters, and, if they aren't chartered FREE doesn't do well. IMO the economies outside the developed countries have a slower rate of growth going forward, but they are still incrasing. Shippers will continue to do OK, just not great.