Deutsche Advises Buying Scorpio Tankers On Weakness

Deutsche Bank analyst Amit Mehrotra expects Scorpio Tankers Inc. STNG to miss estimations in the second quarter. However, the analyst advised investors to buy the shares on weakness.He maintained his Buy rating and retained the price objective of $9.

Mehrotra also moderated his expectations for the second half of the current year, as well as the next year. As a result, Deutsche Bank cut its EPS expectation to $0.42 from $0.83 for the current year, and $1.00 for the year 2017 from the earlier expectation of $1.16.

The analyst indicated his estimations reflected the lower product tanker rate assumptions as he viewed it as "conservative in the outer periods." In any case, the revision is nothing but an indication of the most recent trend, which was downwards.

"Despite the downward revisions we continue to rate STNG shares a Buy and would view any further weakness as a Buying opportunity. Underlying this view are several positive investment points: (1) shares trade at just 4.4x our revised 2017 EPS estimate; (2) 11.5% dividend yield which we view are sustainable and secure; (3) 35% discount to net asset value, which incorporates realistic asset value assumption and $300M remaining capex commitments, and (4) recent ad hoc share repurchase activity (announced on Friday the repurchase of 657k shares @ $4.23 per share)," the analyst said in a note.

The analyst concluded that any weakness after second quarter results should be taken as an advantage to buy the stock as the stock is expected to get re-rated.

The stock traded 4.2 percent down at $4.16 on Tuesday.