Frontline, Overseas Shipholding Rallying, but for How Long?
The tanker stocks have been moving wildly today, as recent corporate news and geopolitical events have been affecting the companies. For example, Businessweek reported that Iran sanctions are tightening as Frontline (NYSE: FRO) and Overseas Shipholding Group (NYSE: OSG) are halting crude cargo from Iran. Additionally, OSG filed a $500 million shelf yesterday, which will allow the company to raise more capital
Frontline was up over 5 percent and Overseas Shipholding Group nearly 10 percent on today's trading session.
Iberia Bank's analyst, David Beard, told Benzinga that he believes “the moves in shipping were partly sparked by short covering in OSG, following their $500mm shelf filing. My thoughts are that the shorts might have realized that OSG can use its unencumbered ships to raise additional capital, thus enabling the company to generate substantial liquidity."
"With several tanker pools announcing that they are not willing to ship Iranian crude oil, we believe oil shippers will need to offer higher rates to move crude oil out of the Gulf, given the heightened risk. Higher rates are always good for tanker stocks," Beard continued.
Evercore Partners' Jonathan Chappell cited Overseas Shipholding Group's shelf filing as one of the drivers behind today's rally. He stated that “OSG filed a $500 million shelf last night, which may lead some to believe that any liquidity/financing concerns could be alleviated.” In addition, Chappell mentioned that “OSG suspended its dividend Thursday night, which was a catalyst shorts were holding out for - with that removed they probably didn't have an identifiable catalyst.”
He also sees the recent product tank orders and stated desire to invest in VLCC newbuildings later this year by Frontline's Chairman as a potential sign that the market is bottoming and points out that the rally in dry bulk stocks may be helping the liquid tanker companies.
One dry bulk name that has rallied in February is DryShips (NASDAQ: DRYS) that is up almost 70 percent since the beginning of the month.
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Evercore Partners disclosure regarding OSG: The analyst knows or has reason to know that the subject company is (or was within the past 12 months) a client of the member.
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