Price of High-Yielding Euroseas Stock Up 71% in 2023
December 18, 2023
ESEA Stock Is Set to Keep Rewarding Investors
Soaring inflation, rising interest rates, and banks saying there was a 100% chance the U.S. would fall into a recession in 2022 or 2023 took the wind out of the sails of many marine shipping stocks, including Euroseas Ltd (NASDAQ:ESEA).
After all, with a recession, the demand for marine shipping would be muted.
But things haven’t quite turned out the way many had predicted. For months and months, analysts were calling for a global recession. After years of instability, though, inflation has been falling, the U.S. economy is resilient, and central banks are poised to start cutting their interest rates in 2024.
While we still face economic headwinds and geopolitical uncertainties, it appears that the U.S. will avoid a serious recession. In the third quarter, the U.S. economy expanded at a seasonally adjusted annualized rate of 5.2%. That’s a big improvement from the first quarter, when the U.S. economy had a growth rate of 2.2%, and the second quarter, when the U.S. economy had a growth rate of 2.1%.
The global economic outlook is positive, too, with the International Monetary Fund expecting global gross domestic product (GDP) to grow by 3.0% in full-year 2023 and 2.9% in 2024. Those estimates are below the 2000–2019 average of 3.8% (Source: “World Economic Outlook: Navigating Global Divergences,” International Monetary Fund, October 10, 2023.)
Although the global economic recovery remains slow, considering the way things looked in 2022, it seems like central banks might have achieved their goal of a soft economic landing.
While container ship market rates have been feeling pressure from a drop in demand for shipping and a spike in the deliveries of ships, the rates for many vessel types are still above their levels in December 2019, which was just before the COVID-19 pandemic.
Global shipping container volumes are expected to increase by up to one percent in full-year 2023 and between three and four percent in 2024 and 2025. (Source: “Container Shipping Market Overview & Outlook Q4 2023,” BIMCO, November 28, 2023.)
These dynamics bode well for the overall marine shipping industry and companies like Euroseas Ltd.
Euroseas is a marine shipping company that has been around for a century, but it only went public in 2005. The Athens, Greece-based company owns and operates dry bulk and container carrier vessels and provides seaborne transportation of dry bulk and containerized cargo. Eurobulk Ltd manages the company’s operations.
Euroseas transports major bulk commodities—such as iron ore, coal, and grains—as well as minor bulk commodities—such as bauxite, phosphate, and fertilizers. (Source: “Overview,” Euroseas Ltd, last accessed December 8, 2023.)
The company has a fleet of 19 vessels, comprising 12 feeder container ships and seven intermediate container ships. Its 19 ships have a total cargo capacity of 58,861 twenty-foot equivalent units (TEU). One TEU represents the volume of one standard shipping container.
After the delivery of seven additional feeder container ships, which are currently under construction and expected to be delivered in 2024, Euroseas Ltd’s fleet will consist of 26 vessels with a total cargo capacity of 75,461 TEU.
$400-Million Charter Revenue Coverage for 2025
For the third quarter, Euroseas announced that its revenues increased by 10.3% year-over-year to $50.7 million. Its net income went up by 27% year-over-year to $32.2 million, or $4.67 per share. (Source: “Euroseas Ltd. Reports Results for the Nine-Month Period and Quarter Ended September 30, 2023,” Euroseas Ltd, November 9, 2023.)
During the quarter, Euroseas’ 19 vessels had an average time charter equivalent (TCE) rate of $30,074 per day. In the third quarter of 2022, the company had 18 vessels and an average TCE rate of $30,893.
The company’s adjusted net income in the third quarter of 2023 was $28.2 million, or $4.07, up by 35.5% from $20.8 million, or $2.90 per share in the same period last year. Its adjusted earnings before income, taxes, depreciation, and amortization (EBITDA) went up by 36% year-over-year to $35.5 million, compared to $26.1 million in the third quarter of 2022.
Commenting on the results, Aristides Pittas, Euroseas Ltd’s chairman and CEO, said, “Based on the contracted revenue backlog of more than $400 million we have developed during 2021 and 2022, we believe we are largely insulated from developments in the charter market during 2024.” (Source: Ibid.)
Pittas continued, “Additionally, we have a significant secured revenue base for 2025[,] having covered more than 25% of our operating days at highly profitable levels.”
He added, “Our liquidity is growing fast[,] which will enable us to easily fund the equity portion of our 7 vessel strong newbuilding program, continue paying a very meaningful dividend and executing on our share repurchasing program and also leave us with ample free cash to acquire further vessels when we deem the timing appropriate.”
Board Declared Quarterly Dividend of $0.50 Per Share
After paying reliable dividends for years, Euroseas Ltd paused its payout in 2013. But changing industry dynamics—including increased profitability and earnings visibility—allowed the company to reinstate its dividends and initiate a share repurchase program in May 2022.
At the time, the board decided to use a small part of the company’s contracted earnings to reward its shareholders with a common stock dividend of $0.50 per share and a $20.0-million share repurchase program. (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.)
The company said it hadn’t altered its growth philosophy, though.
Thanks to its ample free cash flow, Euroseas Ltd has been able to continue paying quarterly dividends of $0.50 per share since then. This works out to a yield of 6.68% (as of this writing). That’s more than twice the current U.S. inflation rate of 3.24%.
Undervalued Euroseas Stock Up 70% Year-to-Date
Container ship rates may be down for the types of vessels that Euroseas Ltd operates, but charter rates are higher than they were before the pandemic. This, and ongoing efficiencies, have helped the company report significant revenue and earnings growth and provide solid guidance.
This helps explain why ESEA stock has been thumping the broader market, up by (as of this writing):
- 40% over the last six months
- 71% year-to-date
- 66% year-over-year
The outlook for Euroseas stock is pretty bright, with analysts providing a 12-month share-price forecast of $36.00, pointing to potential upside of about 22.5%.
Chart courtesy of StockCharts.com
The Lowdown on Euroseas Ltd
Euroseas is a leading global marine shipping business with one of the lowest operating cost structures among publicly traded shipping companies. It has a large modern fleet that is going to get a lot larger in 2024.
The company has reported wonderful financial results all year long and has charter coverage that runs well into 2025, with $400.0 million in contracted revenues. This should protect it from any volatility in the charter market in 2024. It also has more than 25% of its 2025 operating days covered “at highly profitable levels.”
Euroseas Ltd’s revenue and earnings visibility provide the company with a long enough perspective to allow it to continue rewarding investors with reliable, high-yield dividends.
