Okeanis Eco Tankers Corp: Outlook for Beaten-Down 14%-Yielder Robust
December 9, 2024
Okeanis Eco Tankers Corp Stock Has Potential 96% Upside
Things are looking up for Okeanis Eco Tankers Corp (NYSE:ECO) .
At the best of times, marine shipping stocks can face volatility due to the global economic outlook, falling freight rates, and canal and trade route disruptions. But, for the most part, in spite of inflation and trade disruptions, marine shipping stocks have performed well in 2024…at least they have up until a month ago.
In early October, marine shipping stocks took a beating after it was reporting that the U.S. dockworkers had struck a deal to extend their expired contract through January 15, 2025. With longshoremen back to work, global trade disruptions were set to ease and it would be business as usual. With fewer ships having to be rerouted to avoid U.S. ports, shipping companies are expected to see their freight charges return to normal.
For some though, costs will actually go up. The tentative agreement includes a 62% increase in wages over six years. That cost will be passed on to shipping cargo owners and shipping lines.
Investors looking for a short-term rebound in freight charges, which were already in a bit of a downtrend, sold as the strike ended, sending marine shipping stocks considerably lower. Even those that weren’t impacted by the strike.
Case in point, on October 7, Okeanis Eco Tankers Corp stock hit a new record high of $34.98, for a year-to-date gain of 45%. Since then, U.S. longshoremen have gone back to work and ECO stock, along with the rest of the broader industry, has tumbled.
Trading at its lowest level since December 2023, ECO stock is down 33.5% since October 7. The stock is also down 6.5% year to date and five percent on an annual basis.
For Wall Street, this sell-off has simply put ECO stock in a better trading range. Despite the stock taking a big hit, Wall Street is still bullish on Okeanis Eco Tankers, with analysts providing an average 12-month share price target of $44.00. This points to potential upside of approximately 96%.
Chart courtesy of StockCharts.com
Why the bullishness?
The overreaction to the U.S. dock workers strike will pass and investors will be reminded that the world still needs crude oil. Lots of it.
Okeanis is an international shipping company that operates in the crude oil industry. Its fleet currently consists of 14 tanker vessels, including six modern Suezmax and eight modern Very Large Crude Carrier (VLCC) tankers. (Source: “Our Business,” Okeanis Eco Tankers Corp, last accessed November 26, 2024.)
The 14 vessels have an average age of four years and aggregate capacity of approximately 3.5 million deadweight tons. Okeanis is also home to the youngest fleet and highest scrubber penetration. A scrubber is an exhaust cleaning system that removes harmful substances such as sulfur oxide and nitrogen oxide from exhaust emitted by vessels.
Because of marine regulations, companies need to either use expensive fuel with low sulphur content or install a clean exhaust scrubbing system. Okeanis Eco Tankers’ very name suggests that it went with the eco scrubbing systems.
Third-Quarter Results
For the third quarter ended September 30, 2024, Okeanis reported revenue of $84.9 million, down slightly from $89.1 million in the third quarter of 2023. (Source: “Okeanis Eco Tankers Corp. Reports Financial Results for the Third Quarter and Nine-Month Period of 2024,” Okeanis Eco Tankers Corp, November 8, 2024.)
The company reported third-quarter net income of $14.6 million, or $0.45 per share, down from $19.4 million, or $0.60 per share, in the same prior-year period.
Fleetwide, the daily time charter equivalent (TCE) rate was $43,900, with its VLCCs outperforming its peers with a daily rate of $43,100 per day and Suezmax rate of $44,800 per day. The fleetwide daily operating expense was $9,811.
The company’s third-quarter revenue and earnings were negatively impacted by lower TCE rates and fewer operating days, which was a result of expected maintenance.
For the fourth quarter, management said that 66% of Okeanis’ fleet is fixed with an average of $43,800 per day. At the time, 63% of available VLCC spot rates were booked at an average TCE rate of $46,900 and 70% of available Suezmax days were booked at an average TCE rate of $40,200 per day.
Distributes 100% of Free Cash Flow
Okeanis Eco Tankers’ quarterly distribution varies because the payout is based on its free cash flow (FCF).
And the company distributes around 100% of its FCF.
As a result, the payout will change from quarter to quarter. For example, Okeanis’ board declared a second-quarter dividend of $1.10 per share and a third-quarter dividend of $0.45 per share. This works out to $3.31 per share on an annual basis, for a forward yield of 14.4%.
The Lowdown on Okeanis Eco Tankers Corp
Okeanis Eco Tankers Corp continues to be a great marine shipping stock. Despite industry headwinds, the company is reporting solid financial results, including strong TCE rates.
While marine shipping stocks in general have taken a hit since the start of October, the outlook for the crude tanker market and rates beyond 2030 is expected to remain quite healthy and profitable.
This is obviously not lost on company insiders, who own a whopping 83.11% of all shares. This is a big number, which means insiders have incentive to improve operations and generate long-term shareholder value. (Source: “Holders,” Yahoo! Finance, last accessed November 26, 2024.)
A total of 66 Institutions hold 16.08% of all ECO shares. Together, insiders and institutions account for 99.19% of all shares.
