Time To Buy Teekay Tankers, Deutsche Bank Says

• The share price of Teekay Tankers Ltd. TNK has appreciated 41.04 percent year to date, touching a high of $8.29 on October 20.
• Deutsche Bank’s Amit Mehrotra has upgraded the rating on the company from Hold to Buy, while raising the price target from $7 to $10.
• Mehrotra expects to announce a more “shareholderfriendly” cash return policy, which would drive meaningfully higher dividends, which in turn is expected to drive the stock valuation higher.

Analyst Amit Mehrotra explained that the positive outlook on the company was driven by expectations of a shift in management’s “cash return strategy as early as next month, most likely resulting in a step function increase in annual dividend.”

In addition, Teekay Tankers’ earnings are expected to increase significantly, starting in 4Q, “reflecting increasing crude tanker spot rates and higher revenue days from vessels coming off hire.”

Significant deleveraging is expected in 2016, with the company continuing to generate robust free cash flow, with “little-to-no capex requirements.”

According to the Deutsche Bank report, Teekay Tankers is expected to announce, as early as next month, “a more shareholderfriendly cash return policy, potentially moving from a fixed payout back to floating, which we believe would result in significantly higher dividends given the healthy tanker rate environment and resulting strong free cash flow.”

Mehrotra expects the company’s earnings to increase 40 percent sequentially in 4Q, driven by a material increase in revenue days from the Suezmax fleet and sustained improvement in spot rates entering into the winter months, which are seasonally strong.