United Maritime Corp: 12.4%-Yielder Up 17.7% Year Over Year
October 25, 2024
Could United Maritime Stock Have 149% Upside Potential?
There are a lot of reasons for investors to be bullish on the dry bulk shipping company United Maritime Corp (NASDAQ:USEA).
The global shipping industry has performed well in 2024, fueled by tensions in the Red Sea and Suez Canal. In the dry bulk shipping industry, larger-sized vessels have performed better than smaller ones, with demand for the Cape market almost double what it was in the first half of the year.
“Capesize” vessels are so large that they cannot pass through the Panama Canal, so they have to sail around the Cape of Good Hope and Cape Horn, hence the name “Capesize.” Because of challenges in the Middle East, many vessels have to make the longer journey around the Cape of Good Hope in Southern Africa.
The outlook for dry bulk shipping companies remains robust with commodity volumes typically picking up in the third and fourth quarter of the year, driven by iron ore, coal, and grains. And experts see no reason for this momentum to change.
Longer term, the outlook for dry bulk shipping remains solid. The market was valued at $162.6 billion in 2023, and it’s projected to hit $239.5 billion in 2023, expanding at a compound annual growth rate (CAGR) of four percent. (Source: “Dry Bulk Shipping Market Size,” Global Market Insights, last accessed October 16, 2024.)
The solid growth comes from strong global demand for infrastructure materials, including cement and steel. According to the World Bank, over 50% of the global population lives in urban areas. By 2045, the world’s urban population will increase 1.5 times to six billion. This massive growth will result in significantly increased demand for dry bulk shipping.
About United Maritime Corp
United Maritime Corp is a diversified international shipping company with a fleet of eight vessels: three Capesize, two Kamsarmax, and three Panamax dry bulk vessels, with an aggregate cargo carrying capacity of 922,072 deadweight tonnage (DWT). That’s the total amount a ship can carry, including cargo, crew, provisions, fuel, and water. (Source: “Corporate Presentation June 2023,” United Maritime Corp, last accessed October 16, 2024.)
The company’s goal is to grow its fleet to meet industry demand. In July 2022, United Maritime acquired four tankers before the market run and sold four tankers for a combined profit of approximately $40.0 million.
In early 2023, it acquired two Japanese Kamsarmax vessels and one Japanese Panamax vessel. United also sold one of its Long Range 2 vessels at a premium of over 85% of the vessel’s acquisition price.
The company is also diversifying its investment strategy by making a foray into the offshore sector through a minority stake in a newbuilding Energy Construction vessel. This project, in partnership with experienced Norwegian counterparts, is expected to be completed in 2027. The vessel will serve both the oil and gas and renewable energy sectors, addressing the shortage of such vessels amidst growing demand.
United Swings to Profitability on Strong Dry Bulk Market
For the second quarter ended June 30, 2024, United Maritime reported net revenue of $12.4 million, up 24% over the $10.0 million recorded in the same prior-year period. Year-to-date revenue jumped 80% to $23.0 million. (Source: “United Maritime Reports Financial Results for the Second Quarter and Six Months Ended June 30, 2024 and Declares Dividend of $0.075 Per Share,” United Maritime Corp, August 6, 2024.)
The company reported second-quarter net income of $700,000, or $0.08 per share, up from a second-quarter net loss of $3.0 million, or a loss of $0.37 per share, in 2023. Year to date, United reported a net loss of $700,000, or a loss of $0.08 per share, which was a marked improvement over the net loss of $7.9 million, or loss of $0.99 per share, in the first half of 2023.
United Maritime’s adjusted net income for the second quarter was $900,000, or $0.10 per share, up from a loss of $2.1 million, or a loss of $0.25 per share, in the second quarter of last year. The company reported a year-to-date adjusted earnings loss of $200,000, or a loss of $0.02 per share, up from a loss of $5.7 million, or a loss of $0.72, in the first half of 2023.
The time charter equivalent rate (TCE) of the fleet for the second quarter of 2024 was $17,143 per day. The company’s TCE rate for the first six months of 2024 was $16,187 per day.
At the end of the second quarter, United Maritime’s cash and cash equivalents and restricted cash stood at $7.7 million. Its long-term debt, finance lease liabilities, and other financial liabilities added up to $90.3 million.
Commenting on the results, Stamatis Tsantanis, the company’s chairman and chief executive officer, said, “We are delighted to announce United’s return to profitability in the second quarter, driven by continued positive momentum in the dry bulk market. Our fleet was strategically positioned to capitalize on this trend through a blend of fixed and index-linked charters. We remain highly optimistic about the long-term prospects of the market and United’s ability to deliver high returns on capital.”
Looking ahead, Tsantanis said that United had fixed approximately 75% of its third-quarter days at an average rate of $17,737.
7th Consecutive Quarterly Dividend of $0.075/Share
United Maritime only went public in 2022, but in the short period of time since then, it has shown its commitment to returning value to shareholders through its dividend and share buyback policies.
Since its inception, the company has returned total cash dividends of $12.0 million, or more than $1.52 per share, representing approximately 63% of its total market capitalization.
Since July 2022, United Maritime has also repurchased $6.7 million in share buybacks, with active authorization to repurchase up to an additional $2.3 million. Together, dividends and share buybacks have totaled $18.7 million.
In the second quarter of 2024, the company declared its seventh consecutive quarterly cash dividend of $0.075 per share, or $0.30 on an annual basis, for a forward, annualized yield of 12.4%.
Management said it remains optimistic that the positive market conditions will allow United to consistently reward its shareholders in the next quarters.
Will it be able to raise those payouts?
Well, TCE rates are up, which should help juice profitability.
Moreover, after United Maritime Corp reported 2023 earnings of $0.02 per share, analysts expect earnings to jump 238% to $0.05 per share in 2024 and a further 220% in 2025 to $0.16 per share. Moreover, its payout ratio is a paltry 32.26%. An increased dividend payout in 2025 is not out of the question. (Source: “United Maritime Corporation (USEA),” Yahoo! Finance, last accessed October 16, 2024.)
149% Upside Potential for USEA Shares?
USEA shares have traded in a relatively tight range since the start of 2023, but they’re still trading up 8.5% year to date and up 17.7% over the last 12 months. Decent gains, but Wall Street thinks USEA stock has a lot of room to run, with one analyst providing an average 12 month share price target of $6.00. This points to upside potential of 149%.
Chart courtesy of StockCharts.com
The Lowdown on United Maritime Corp
To sum it up, United Maritime is a dry bulk shipping company with a fleet of eight vessels. It reported strong second quarter revenue and TCE growth, and swung to second quarter profitability. It also has fixed roughly 75% of its third quarter days with a TCE rate well above the second quarter.
Consistent with its practice of returning capital to shareholders, the company declared its seventh consecutive quarterly dividend of $0.075 per share.
The outlook for United Maritime remains solid, based on limited new deliveries of vessels and continued strong dry bulk commodity demand, with its mixed fleet of vessels well positioned to take advantage of these developments.
This is a trend that management expects to continue, “positioning United advantageously to benefit.”
