Euroseas Stock: Bullish 7%-Yielder Hiked Quarterly Payout 20%
April 4, 2024
Why ESEA Stock Has Been Rising in Value
Troubles in the Red Sea haven’t just given oil and natural gas marine shipping stocks a boost. Dry bulk and container marine shipping companies like Euroseas Ltd (NASDAQ:ESEA) have also been seeing their profitability improve sharply as attacks on vessels in the Red Sea continue to force vessels to take longer travel routes.
In fact, the container ship market has staged a big comeback in 2024 from its 2023 lows.
In October 2023, the going rate for a 40-foot container was $1,342. By January 2024, the rate had surged by 190% to $3,964, its highest level on record. Freight rates have pulled back a little since then, but it still costs more than $2,900 to ship a 40-foot container. (Source: “World Container Index – 28 Mar,” Drewry Shipping Consultants Limited, March 28, 2024.)
While the disruptions in the Red Sea will eventually be resolved, the container shipping industry is expected to remain robust, with demand coming from worldwide economic growth and trade growth within intraregional markets.
This is the case for Euroseas Ltd, which has a contracted revenue backlog of more than $350.0 million, as well as significant revenues booked for 2025, with more than 25% of its operating days at highly profitable levels. (Source: “Euroseas Ltd. Reports Results for the Year and Quarter Ended December 31, 2023 and increases dividend by 20% to $0.60 per share,” GlobeNewswire, February 21, 2024.)
Euroseas is a marine shipping company that has been around for more than a century but only went public in 2005. Eurobulk Ltd. manages the company’s operations. (Source: “Overview,” Euroseas Ltd, last accessed March 2, 2024.)
The Athens, Greece-based company, which owns and operates dry bulk and container carrier vessels, provides seaborne transportation for dry bulk and containerized cargoes. (Source: Euroseas Ltd, February 21, 2024, op. cit.)
The company has a fleet of 19 vessels, including 12 feeder container ships and seven intermediate container ships. Its ships have a cargo capacity of 58,861 twenty-foot equivalent units (teu). That unit of measurement is based on the length of a typical shipping container (20 feet). (Source: “Overview,” Euroseas Ltd, op. cit.)
Once the company’s ships under construction are completed, its fleet will be 26 container ships with a cargo capacity of about 75,461 teu.
In February, Euroseas Ltd took delivery of a 2,800 teu feeder container ship newbuilding from Hyundai Mipo Dockyard Co Ltd in South Korea. The vessel, named “M/V Tender Soul,” then commenced an eight to 10-month charter at a rate of $17,000 per day. (Source: Euroseas Ltd, February 21, 2024, op. cit.)
Solid Q4 & Full-Year 2023 Earnings & Revenue Growth
For the fourth quarter ended December 31, 2023, Euroseas announced that its net revenues increased by 14% year-over-year to $49.1 million. Its quarterly net income went up by 21% year-over-year to $24.7 million, or $3.56 per diluted share. (Source: Euroseas Ltd, February 21, 2024, op. cit.)
During the fourth quarter of 2023, the company owned and operated an average of 19 vessels, earning an average time charter equivalent (TCE) rate of $29,266 per day. That’s compared to 18 vessels earning an average of $29,399 per day in the same prior-year period.
In full-year 2023, Euroseas Ltd’s revenues grew by 3.6% to $189.4 million. Meanwhile, its net income advanced 7.8% to $114.5 million, or $16.52 per diluted share.
In 2023, the company owned and operated an average of 18.25 vessels, earning an average TCE rate of $29,714 per day. That’s compared to 17.12 vessels earning an average of $31,964 per day in 2022.
Euroseas Ltd Hiked Quarterly Dividend 20%
After paying reliable dividends for years, Euroseas paused its payouts in 2013.
But changing industry dynamics, including increased profitability and earnings visibility, allowed the company’s board to reinstate its dividend and enact a share repurchase program in May 2022. (Source: “Euroseas Ltd. Reports Results for the Quarter Ended March 31, 2022, Announces Share Repurchase Program and Declares Quarterly Common Stock Dividend,” Euroseas Ltd, May 23, 2022.)
More recently, the company’s tremendous fourth-quarter 2023 financial results and earnings visibility allowed its board to increase Euroseas’ quarterly distribution by 20% to $0.60 per share for March 2024.
That works out to a yield of 7.21% (as of this writing), which is more than double the current U.S. inflation rate.
Euroseas Stock’s Price Up by 112% Year-Over-Year
The 20% increase to Euroseas Ltd’s quarterly distribution came at a time when ESEA stock’s share price was on fire.
As of this writing, Euroseas stock is up by 40% over the last six months, 20% year-to-date, and 112% year-over-year.
Chart courtesy of StockCharts.com
The outlook for ESEA stock is pretty solid, with analysts providing a 12-month share-price forecast of $49.50. This points to potential gains of 36%.
The Lowdown on Euroseas Ltd
Euroseas is a leading global marine shipping company with one of the lowest operating cost structures among publicly traded shipping companies. It has a large modern fleet that’s going to get a lot larger in 2024, with its cargo capacity set to jump by 28% this year.
Euroseas Ltd continues to report solid financial results, it has an enormous backlog, and it has “significant revenues” booked for 2025. The company also has a significant buffer of almost $60.0 million of unrestricted cash, which it expects to increase in 2024. That’s higher than the equity needed for the company’s remaining newbuild program, increased dividends, and share repurchases.
