Overseas Shipholding Group, Inc. (OSG) yesterday announced the beginning of the public offering of its 3,500,000 shares underwritten on its common stock. With this move, the company aims to increase its capital and enhance liquidity.
At a sale price of $46.99 per share, the public stock offering is expected to raise about $165 million for OSG upon successful completion on Mar 10, 2010. For this, the company has appointed Goldman, Sachs & Co. (GS) as the sole underwriter.
OSG expects to utilize the net proceeds of the stock offering for general and corporate purposes that includes apportioning funds for capital expenditure and working capital of the company. OSG also expects to pay back its revolving credit facilities and other existing debt obligations from the proceeds of the stock offering.
Given the current volatility in the markets and the sluggish recovery that has been affecting the operating results adversely, we believe that increasing capital through share issue can provide liquidity and stability to the balance sheet of OSG, although dilution of shares weighs on the earnings per share.
Estimate Revision Trend
Over the last 30 days, 2 of the 13 analysts covering the stock have lowered their estimates for the first quarter of 2010, while 5 revised upward. Currently, the Zacks Consensus Estimate for first quarter is operating earnings of 25 cents per share, which would be up by 14.1% from the year-ago quarter.
The higher number of upward estimate revisions for the first quarter indicates a likelihood of upward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has been very steady over the last four quarters, with all positive surprises. The average remained positive at 31.8%. This implies that OSG has surpassed the Zacks Consensus Estimate by 31.8% over that period.
The downside potential for the estimate for the first quarter, essentially a proxy for future earnings surprises, currently stands at 140% for OSG.
OSG’s fourth quarter operating loss per share of 59 cents came in substantially better than the Zacks Consensus Estimate of a loss of $1.21 per share on lower operating expenses due to rigorous re-engineering efforts and cost control. However, this was offset by weak top-line growth due to a low demand that led to lower average spot rates and net reduction in the operating fleet as compared to the prior-year period.
OSG faced headwinds in 2009 as a result of declining global oil demand, particularly in North America and significantly low refinery utilization levels in Europe, Japan and the U.S. This combined with substantial OPEC production cuts and a 6% increase in the global tanker fleet juxtaposed to produce a very challenging environment for spot rates.
However, management appears modestly optimistic with an improved 2010 outlook through a fully financed new building program, a modern fleet along with cash and short-term investments position of $525 million and liquidity of approximately $1.6 billion, reflecting a prudent financial discipline.
Read the full analyst report on “OSG”
Read the full analyst report on “GS”
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