Will DryShips (DRYS) Miss Earnings Estimates? - Analyst Blog

DryShips, Inc. DRYS, a global diversified marine transporter, is slated to report its first-quarter 2014 financial numbers after the closing bell on May 22, 2014.

Last quarter, the company had delivered a 200.00% negative earnings surprise. Let's see how DryShips is positioned this time prior to the first-quarter announcement.

Factors to be Considered This Quarter

The drybulk shipping rates and ship values have improved considerably in recent times and management is expecting the trend to continue in 2014. The company's majority owned offshore oil drilling company, Ocean Rig UDW, is a major long-term catalyst. DryShips also boasts a well-diversified portfolio of drybulk vessels, oil tankers and offshore oil drilling units.

Meanwhile, the offshore drilling division continues to flourish buoyed by increasing expenditures from oil companies and success in ultra-deepwater oil field discoveries.

On the flip side, despite an improving U.S. macroeconomic scenario, the drybulk shipping industry is still not out of the woods. This is solely attributable to non-economic decisions taken by the shipping companies in 2008, just before the onset of recession worldwide.

The increase of vessels under operation resulted in intense price competition. Due to the lack of near-term foresight, most of the vessel operators had ordered large number of new build ships in several docks. This abundance of vessels resulted in severe cut-throat price competition.

Earnings Whispers?

Our proven model does not conclusively show that DryShips is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Positive Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to a positive ESP of +500% for DryShips as the Most Accurate estimate stands at 12 cents while the Zacks Consensus Estimate is pegged much lower at 2 cents.

Zacks Rank: DryShips holds a Zacks Rank #4 (Sell) which decreases the predictive power of the stock.  

We caution investors against this stock going into the earnings announcement, as a Zacks earnings ESP of +500% when combined with a Zacks Rank #4, lowers the possibility of an earnings surprise.

Other Stocks to Consider

Here are some companies worth considering as our model shows these have the right combination of elements to post an earnings beat this quarter:

Danaos Corp. DAC, with earnings ESP of +7.69% and a Zacks Rank #3 (Hold).

DHT Holdings, Inc. DHT, with earnings ESP of +22.22% and a Zacks Rank #3.

Teekay Corp. TK, with earnings ESP of +38.46% and a Zacks Rank #3.