SBLK Stock Has 76% Upside
Industry and economic trends bode well for ultra-high-dividend-yielding Star Bulk Carriers Corp (NASDAQ:SBLK)…and Star Bulk Carriers stock.
A September interest rate cut is all but locked in, indicating that inflation is cooling. Better still, July retail sales came in better than expected, increasing one percent. This was the most in a year and a half and well above Wall Street’s forecast for a 0.3% increase.
On its own, this might only be one month of strong retail sales, but it underscores the strength of the U.S. economy and boosts investor optimism that it’ll avoid a recession and achieve a “soft landing.”
Cooling inflation and resilient growth are great signs for the U.S., the largest economy in the world. The global economy, meanwhile, is a little muddled, but it is stabilizing for the first time in three years.
Fortunately, rate cuts from the Federal Reserve, will make borrowing cheaper and have a big impact on global financial markets. This is especially true for 2025, with global inflation expected to return to its target rate, generating tailwinds for business investment and consumer purchasing.
This is one reason why the outlook for the global dry bulk shipping industry seems quite solid.
In 2023, the size of the dry bulk shipping market was $162.6 billion, projected to expand at a compound annual growth rate of four percent between 2024 and 2032. (Source: “Dry Bulk Shipping Market Size,” Global Markets Insight, January 2024.)
More recently, the dry bulk shipping industry rebounded in the first half of 2024, fueled by Capesize vessels and the iron-ore trades. As for the back half of 2024, commodity market volumes generally pick up in the third and fourth quarters driven by coal, iron ore, and grains.
About Star Bulk Carriers Corp
Athens-Greece-based Star Bulk Carriers is the largest dry bulk shipping company listed on the Nasdaq. As a primer, dry bulk consists of unpacked commodities such as coal, bauxite, grain, iron ore, sand, gravel, and scrap metal.
Star Bulk’s diverse fleet consists of 159 bulk carriers ranging from Supramax to Newcastlemax vessels. It also has seven newbuilding orders set for delivery over the next two years, with two of its newest vessels slated for delivery in the fourth quarter of 2024. (Source: “Overview,” Star Bulk Carriers Corp, August 27, 2024.)
With an average age of 11.3 years, the company’s vessels give it exposure to all cargo types and trade routes. Its Capesize vessels are mainly responsible for transporting minerals from the Americas and Australia to East Asia.
Star Bulk’s Supramax vessels carry minerals, grain products, and steel between the Americas, Europe, Africa, Australia, and Indonesia and between China, Japan, South Korea, Taiwan, the Philippines, and Malaysia.
The company has actually grown in size over the last number of months. Back in April, it completed a merger with Eagle Bulk Shipping Inc. The combined company increases the number of dry bulk vessels, with liquidity of nearly $420.0 million, and generating at least $50.0 million in annual cost and revenue synergies within 12 to 18 months after closing. (Source: “Star Bulk Completes Merger with Eagle Bulk,” Star Bulk Carriers Corp, April 9, 2024.)
Income investors were a little concerned that the merger would negatively impact the company’s dividend policy, but management reassured shareholders that it expects to maintain Star Bulk’s current dividend policy.
Daily TCE Rates Jump 21%
For the second quarter ended June 30, 2024, Star Bulk announced that voyage revenues increased 48% year over year to $352.9 million from $238.7 million in the second quarter of 2023. (Source: “STAR BULK CARRIERS CORP. REPORTS NET PROFIT OF $106.1 MILLION,” Star Bulk Carriers Corp, August 7, 2024.)
The company reported net profit of $106.1 million, or $0.93 per share, a 140% increase over the $44.3 million, or $0.43 per share, recorded in the same prior-year period. Year-to-date net income more than doubled to $180.9 million, or $1.87 per share.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $153.4 million, up 60% from $96.1 million in the second quarter of 2023.
Time charter equivalent (TCE) revenues increased 49% to $262.2 million from $175.6 million during the second quarter of 2023. The gain was driven by the increase in the average number in its fleet to 155 from 126.4 during the same period last year and improved charter rates.
Star Bulk Carriers reported second-quarter daily TCE rates of $19,268, up 21.5% over the second-quarter 2023 daily TCE rate of $15,835. Year-to-date daily TCE rates were up roughly 30% at $19,420.
The company ended the quarter with cash and equivalents of $480.9 million, compared with $259.7 million at the end of 2023.
Commenting on the results, Petros Pappas, the company’s chief executive officer, said, “During the second quarter 2024, Star Bulk continued having a strong performance generating Net Income of $106.1 million with a TCE per vessel per day of $19,268. This is the first quarter we are reporting as a combined entity after the completion of our merger with Eagle Bulk Shipping Inc. on April 9th.”
14th Consecutive Quarterly Dividend for Star Bulk Carriers Stock
As part of its balanced approach to capital allocation, Star Bulk continues to return capital to shareholders in the form of a reliable, ultra-high yield dividend.
In August, the company’s board declared a dividend of $0.70 per share, or $2.80 on an annual basis, for a forward yield of 12.97%.
This represents the 14th consecutive dividend payment. Since June 2021 Star Bulk has paid over $1.25 billion in dividends. To put that number into perspective, with a current share price of $20.94, this represents roughly 50% of its current market capitalization of $2.47 billion.
Star Bulk Carriers Stock Offers 76% Upside
Star Bulk Carriers stock has been enjoying a good year, having hit a new 52-week high of $25.82 on May 29. SBLK stock retreated a little since then, but it has been rebounding since early August.
Currently trading at $20.94, Star Bulk Carriers stock is up 36.5% year over year, versus the 27.7% gain of the S&P 500.
Despite the big gains, Wall Street expects SBLK to rip higher over the coming quarters, with analysts providing a 12-month share price target range of $21.00 to $36.90. This points to potential upside of up to 76% with Star Bulk Carriers stock.
Why the optimism?
Of the five analysts following Star Bulk Carriers stock, the average earnings estimate for 2024 is $3.97 per share, up from $1.84 per share in 2023. There is even a high earnings estimate for 2024 of $5.38 per share. In 2025, earnings are projected to climb again to $4.84, with a high estimate of $6.89 per share. (Source: “Star Bulk Carriers Corp. (SBLK),” Yahoo! Finance, last accessed August 27, 2024.)
Chart courtesy of StockCharts.com
The Lowdown on Star Bulk Carriers Stock
Star Bulk Carriers stock continues to be a great marine shipping pick. It reported another solid quarter, with strong revenue, earnings, adjusted EBITDA, and daily TCE rate growth.
With total liquidity of over $500.0 million, solid industry tailwinds, and a shortage of dry bulk vessels, the outlook remains excellent for Star Bulk Carriers, its share price, and its ultra-high-yield dividend.