UPDATE: Imperial Capital Initiates Underperform on Frontline on Unfavorable Near-Term Fundamentals
Imperial Capital initiated coverage on the common stock of Frontline (NYSE: FRO) with an Underperform rating and a $2.50 price target, while assigning an Outperform rating to the company's $215mn 4.5% convertible senior notes due 4/14/15.
On the common stock coverage, Imperial Capital commented, "Although we believe the company successfully extended its runway, near-term fundamentals in the crude tanker market remain extremely challenged and the renegotiated charter agreements (which lowered the company's breakeven level) eliminate much of the potential earnings upside through 2015. Additionally, we think the stock could face potential dilution if the operating environment continues to deteriorate and/or as a result of addressing the maturity of the 4.5s. The stock currently trades at a premium to the comp average (10.9x 2013E EBITDA versus 9.8x average for group). Our $2.50 price target is based on a multiple of 10x 2013E EBITDA."
Frontline closed at $3.96 on Thursday.
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