Is it finally time to buy the dry bulk shippers? DryShips Inc. (DRYS) has surprised on estimates 3 out of the last 4 quarters but investors don’t seem to care as shares have been mired in a narrow trading range.
Yet DryShips is cheap. It is trading at just 4.9x forward estimates.
DryShips is somewhat unique in the shipping industry in that it operates both drybulk carriers and also offshore oil deep water drilling units.
The dry bulk fleet has a capacity of over 3.5 million deadweight tons and operates 39 drybulk carriers, including 7 Capesize, 30 Panamax and 2 Supramax carriers.
The company’s offshore oil deep water drilling division operates 2 ultra deep water semisubmersible drilling rigs and 4 ultra deep water newbuilding drillships.
No Rebound in Shipping Stocks
The dry bulk shipping industry has been hammered hard in the recession. Stocks of the shippers have taken a beating as well and have not really recovered off the March 2009 lows.
DryShips has followed that pattern as you can see in the 3-year chart below. There has been virtually no rebound in the stock in the past 18 months. DryShips is the one in orange. But the same is true of some of its peers such as Genco Shipping (GNK) and Diana Shipping (DSX).
Contracting On 4 Ultra Deepwater Drillships
DryShips sees opportunities in deepwater drilling. On Nov 23, it announced a contract with a South Korean shipyard for up to 4 ultra deepwater drillships at the cost of about $600 million per drillship. Deliveries would be in 2013 and 2014.
“The ultra deepwater market has turned a corner and we believe this is the bottom of the newbuilding price cycle,” said George Economou, Chairman and CEO.
“We see strong demand for state of the art ultra deepwater drillships and are confident of customer demand for these drillships,” he added.
DryShips Surprised By 24% in the Third Quarter
On Nov 17, DryShips reported its third quarter results and beat the Zacks Consensus for the third straight quarter. Earnings per share were 38 cents compared to the consensus of 26 cents. It made just 11 cents in the year ago quarter.
The quarter was boosted by a turnaround in the ultra deepwater market. The company’s decision to fix out its dry bulk fleet also paid off in the quarter as its time chartered fleet outperformed the spot market.
Going forward, the shipping segment looks promising. 80% of its 2011 shipdays were fixed out at about $37,000 per day which DryShips believes will again outperform the spot market.
On the deepwater side of the business, its two semi-submersibles also performed at high utilization rates. Again, given the turnaround in the deepwater market, it expects this performance to continue.
Zacks Consensus Estimates Rise
Earnings are expected to come a long way in 2010 from the dreary days of 2009. 4 estimates have moved higher for 2010 in the last 7 days pushing the Zacks Consensus up to $1.12 per share.
That is earnings growth of 600%.
Earnings are expected to continue to rise in 2011, but only at the rate of about 6.3%. The 2011 Zacks Consensus has risen 7 cents to $1.19 in the last week.
DryShips Has Both Value and Growth
DryShips is that rare stock that is both cheap and has a strong growth component. It has a PEG ratio of just 0.1, well under its peers at 1.9.
In addition to its dirt cheap P/E, it also sports a low price-to-book ratio of only 0.5, while its peers are at 1.6.
The company has a 1-year return on equity (ROE) of 10.8%, also besting its peers at 9.6%.
DryShips is a Zacks #1 Rank (strong buy) stock.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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