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Ahoy, Upside Ahead: B Riley FBR Out Bullish On 3 Shipping Stocks

Jayson Derrick

B. Riley FBR initiated coverage of multiple shipping stocks this week, taking bullish stances on Scorpio Bulkers Inc (NYSE: SALT), 2) Golar LNG Limited (NASDAQ: GLNG) and Eagle Bulk Shipping Inc. (NASDAQ: EGLE).

The Analyst

B. Riley FBR's Liam Burke initiated coverage of three shipping stocks Wednesday:

  • Scorpio Bulkers: Buy, $9.50 price target.
  • Golar LNG: Buy, $34 price target.
  • Eagle Bulk Shipping: Buy, $8.50 price target.

Scorpio Bulkers

Scorpio Bulkers is a cost-effective operator with an average vessel age of just 2.4 years, Burke said in the initiation note. (See his track record here.) 

A young fleet is favorable, as they are more fuel efficient than older ones and are designed to pass recent ballast regulations, the analyst said. 

The company's Ultramax vessel fleet also operates mostly in the spot market rather than Supramaxes that operate in long-term charters, Burke said. This gives Scorpio Bulkers a key advantage, as the lower clarity in revenue predictability and earnings volatility takes a back seat to favorable spot rates that should maximize Scorpio's fleet investments in the current market environment, he said. 

Scorpio's free cash flow should notably move higher in an environment of improving TCE — time charter equivalent —and low capital expenditures, Burke said. The higher cash flow offers more financial flexibility, allowing management to invest in high return projects, he said. 

Related Link: Scorpio Bulkers Upgraded By Credit Suisse, Sees 15% Increase In Dry Bulk Asset Prices

Golar LNG

A 10-percent drop in Golar LNG's stock since the start of 2018 offers investors an attractive risk-reward profile, Burke said in a separate initiation note.

The bullish case is supported by the company's transition from a transporter of liquefied natural gas to an integrated energy provider of upstream, downstream and midstream solutions, the analyst said. Encouragingly, the capital-intensive nature of natural gas delivery implies Golar LNG can operate with minimal competition given the high barriers to entry, he said. 

Golar's $4-billion investment in LNG carriers implies heavy capital spend has passed and long-term contracts are now in place, the analyst said. The company is positioned to reap benefits from its investments in the form of strong free cash flow, he said. 

Eagle Bulk Shipping

Shares of Eagle Bulk Shipping continue to trade an attractive valuation despite a 22-percent to-date in 2018, Burke said.

The company has a continued focus on a wide range of commodity shipments and an efficient and cost-effective fleet, positioning it to take advantage of global economic growth and lower shipyard output, the analyst said. 

Eagle Bulk's stock is trading at 4.2 times EV to 2018 EBITDA, which implies a 30-percent discount to shipping peers, according to B. Riley FBR.

The analyst's $8.50 price target is based on a 5.6 times multiple, which is a premium to the group — and warranted given expectations for improving operating efficiency and related fundamentals, Burke said. 

Related Link: Choppy Seas For The Guggenheim Shipping ETF

Price Action

Scorpio Bulkers shares were trading up slightly at $7.27 at the time of publication Thursday, while Golar LNG shares were down 2.83 percent at $27.32 and Eagle Bulk shares were up 0.53 percent at $5.73. 

Photo by AashayBaindur/Wikimedia. 

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