Stifel: SEACOR Has Been Hot Lately, But Buying At This Price Could Burn You

While Seacor Holdings, Inc. CKH has been benefiting from a host of factors, the company's near-term potential is priced in, according to Stifel.

The firm downgraded Seacor Holdings from Buy to Hold and raised its price target from $40 to $53. 

SEACOR is experiencing a hurricane-induced increase in Caribbean and Puerto Rican trade, as well as in its disaster recovery and barge businesses, analyst Benjamin Nolan said in a Sunday note.

The Fort Lauderdale-based company's growth areas could include U.S. government business, rail ferries and consolidation opportunities, Nolan said. (See Nolan's track record here.) 

All of these options represent the possibility of future earnings growth for SEACOR, the analyst said. 

The Hurricane Impact 

SEACOR's third-quarter earnings, reported Nov. 1 after the close, slightly missed estimates, according to Stifel. The company lost $8.1 million on a mark-to-market their ownership of Dorain LPG, which had a $0.46 per share effect, Nolan said. 

That said, the shipping business beat Stifel estimates by $4.8 million.

Stifel adjusted its estimates for the company due to a trio of factors. The barge business is improving in both rates and volume, most notably in St. Louis, Nolan said. The firm also expects SEACOR to start receiving windfall profits from Witt O'Brien's, a SEACOR-owned emergency management and disaster company, as communities clean up after a major hurricane season. 

Caribbean and Puerto Rico container trade are likely to remain stronger due to the rebuilding occurring after serious destruction on a number of islands. To reflect the business' earnings potential, Stifel upwardly adjusted its estimates and also its price target for the shares.

Despite the healthy business climate, SEACOR's valuation is starting to be stretched, Nolan said.

The spinning off of the offshore business has done its job, as the market has re-rated the company's shares quickly on its own earnings potential, Nolan said. 

"At 60.9 times 2018 earnings and 33.6 times 2019 earnings and 126 percent of book value, we see much of that healthy business is already built into the price of the shares." 

SEACOR could judiciously use the higher stock price to make further bolt-on acquisitions, Nolan said. Given the stock run, the analyst is of the view that the valuation doesn't provide a margin of safety. Before going long on the shares, Nolan said he'd like to see continued better operations or a change in valuation.

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