Diana Shipping's unique features and key May 14 discussions (Part 6 of 6)
Diana Shipping Inc. (DSX) doesn’t think that growing its fleet during this cycle is the only way for it to maximize shareholder return. On May 23, Diana Shipping released a statement indicating the approval of the company’s board of directors for a share repurchase plan or buy-back program for up to $100 million of the company’s common shares.
The company isn’t obligated to repurchase any shares under the plan, but the repurchase is still possible. With vessel prices high compared to where shipping rates currently lie and several dry bulk shipping companies’ shares coming down quite significantly over the last few months, investing in itself may be one of the best moves Diana can make.
Management will often initiate buyback programs when it believes the company is undervalued and provides the best return for shareholders. As share prices for most companies in the market have rallied, few managers are willing to initiate buyback programs. In the dry bulk shipping space, though, that story may still be different.
As the chart above shows, Diana’s forward (enterprise value–to–earnings before interest, tax, depreciation, and amortization) currently sits around 7.73. Valuations have come down significantly from 14.0 times a few months ago. While this was partially because of lower share prices over the last three months, a large part of the decline was due to analysts’ upward revisions to earnings, and perhaps a greater weight towards Diana’s under-market contract rates that will expire over the next 24 months.
However, if we compare the current valuation to the trading range throughout the end of 2008 to early 2013, when the industry went into a long-term slide, we’ve yet to hit that stage. This is one factor that suggests the long-term recovery in the dry bulk shipping industry remains intact. This would also be positive for DryShips Inc. (DRYS), Safe Bulkers Inc. (SB), Navios Maritime Partners LP (NMM), and the Guggenheim Shipping ETF (SEA) as well.
To learn more about investing in stocks like Diana, check out Market Realist’s Marine Shipping page.
Browse this series on Market Realist:
- Part 1 - Diana Shipping’s unique features and key May 14 discussions
- Part 2 - Why Diana Shipping will be sensitive to rates near the end of 2014
- Part 3 - Why Diana’s solid cash balance and low leverage are so important
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