Why Scorpio Tankers Is Now Loved At Deutsche Bank

Deutsche Bank’ Amit Mehrotra upgraded the rating for Scorpio Tankers Inc. STNG from Hold to Buy, while maintaining a price target of $9. He explained that the upgrade reflects the stock’s “compelling valuation,” after the recent pullback, as well as management’s “willingness to be opportunistic in capturing dislocations for the benefit of equity holders.”

Scorpio Tankers’ shares represent a 60 percent upside to the price target, following the 40 percent decline over the last three months, analyst Amit Mehrotra mentioned. This compares with an 8 percent decline in the S&P over the same period.

Valuations such as these compel management to more aggressively repurchase shares, and also result in asset sales, which would be “immediately accretive to equity value given discount to NAV,” the analyst wrote.

“The dislocation between tanker fundamentals and public equity values has been a source of frustration for companies and investors for over a year. But few companies have actually done anything about it. Share repurchases have been lackluster, at best, and sales of modern tonnage have been few and far between,” the Deutsche Bank report noted.

In the current pricing environment, Scorpio Tankers’ shares and asset sales appear to be the best opportunities for management to create value, and their willingness to “engage in such actions more aggressively will realize the most benefit,” Mehrotra commented.