Frontline Plc (FRO): A Comprehensive Analysis of its Fair Valuation
Frontline Plc (NYSE:FRO) recently experienced a daily loss of -4.28%, although it has gained 12.22% over the last three months. With an Earnings Per Share (EPS) (EPS) of 3.71, the question arises: Is Frontline Plc (NYSE:FRO) fairly valued? This article aims to provide a detailed valuation analysis of Frontline Plc, offering insights into its intrinsic worth. Let's delve into the financials and business operations of Frontline Plc to answer this question.
Company Introduction
Frontline Plc is an international shipping company engaged in the seaborne transportation of crude oil and oil products. The company operates through the tankers segment, which includes crude oil tankers and product tankers. Frontline's geographical area of operation includes the Arabian Gulf, West African, the North Sea, and the Caribbean. The company earns revenue through voyage charters, time charters, and a finance lease. It is also involved in the charter, purchase, and sale of vessels. Currently, Frontline Plc's stock is priced at $16 per share, with a market cap of $3.60 billion. The GF Value of Frontline Plc stands at $15.89, indicating that the stock is fairly valued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Frontline Plc's GF Value
Frontline Plc's stock is believed to be fairly valued based on the GuruFocus Value calculation. The GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $16 per share, Frontline Plc has a market cap of $3.60 billion and the stock is believed to be fairly valued.
Because Frontline Plc is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. Frontline Plc has a cash-to-debt ratio of 0.23, which ranks worse than 66.44% of 1028 companies in the Oil & Gas industry. The overall financial strength of Frontline Plc is 5 out of 10, which indicates that the financial strength of Frontline Plc is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Frontline Plc has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $1.90 billion and Earnings Per Share (EPS) of $3.71. Its operating margin of 43.98% better than 85.63% of 974 companies in the Oil & Gas industry. Overall, GuruFocus ranks Frontline Plc's profitability as fair.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Frontline Plc's 3-year average revenue growth rate is worse than 55.66% of 857 companies in the Oil & Gas industry. Frontline Plc's 3-year average EBITDA growth rate is 19.9%, which ranks better than 57.65% of 824 companies in the Oil & Gas industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Frontline Plc's ROIC was 19.96, while its WACC came in at 5.71.
The historical ROIC vs WACC comparison of Frontline Plc is shown below:
Conclusion
In summary, the stock of Frontline Plc (NYSE:FRO) is believed to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 57.65% of 824 companies in the Oil & Gas industry. To learn more about Frontline Plc stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
