We initiate coverage on Overseas Shipholding Group Inc. (OSG) with a Neutral recommendation, which means the stock will perform mostly in line with the broader market. The company reported mixed financial results for the second quarter 2010. Revenue beats the Zacks Consensus Estimate but earnings per share significantly fell below it.
 
As a market leader in global energy transportation services segment, Overseas Shipholding maintains a state-of-the-art fleet of vessels with major emphasis on quality, safety, and environmental issues. As a result of an improving global economy, we believe long-run fundamentals of the oil tanker industry remains compelling. Management has decided to keep its vessels in the pooling arrangement, which will increase charterhire and utilization rates.
 
Overseas Shipholding maintains a diverse fleet and a balanced mix of spot and time charter contract. In the spot market, competition is based primarily on price, although charterers are becoming more selective with respect to the quality of the vessel they hire. The key factors are the vessel age, the reliability, and quality of operations, and preference for modern double-hull vessels based on concerns about environmental risks associated with older vessels.
 
Overseas Shipholding has taken a number of steps to increase the size of its fleet, including several acquisitions. More importantly, it has significantly increased the diversity of its fleet, making its revenue stream less dependent on the inherently volatile spot market. In the international market, Overseas Shipholding has one of the most modern and efficient fleets within the industry, as 100% of the company owned international flag fleet is double hull.
 
On the other side, the shipping industry is highly competitive and fragmented with Overseas Shipholding competing with other large U.S. and international flag tankers and dry cargo ships. Competitors include independent shipowners, oil companies, and state-owned entities with their own fleets. Failure to secure continued employment for its vessels may significantly affect Overseas Shipholding’s financials in future.
 
OVERSEAS SHIPHO (OSG): Free Stock Analysis Report
 
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