Oil tankers are facing rough waters in the Strait of Hormuz again. The U.S. and Iran have both stepped up attacks on ships in the region. As a result, crude oil prices jumped above $100 per barrel, and traffic through the strait declined sharply again.
It’s clear the threat of attack has made shipping commodities through the Strait of Hormuz a risky venture. Some shipping companies have even opted to avoid the Strait of Hormuz altogether, choosing instead to sail across the Indian Ocean, around the southern tip of Africa, up through the Mediterranean Sea and then down the Suez Canal into the Red Sea.
The longer route has tripled travel time from 20 days to 60 days.
Longer routes may be bad for manufacturers shipping products, but they are great for shipping companies. Longer routes combined with elevated rates mean tanker companies may achieve record earnings. Here are some tantalizing buys based on my scoring system.
Okeanis Eco Tankers cashes in on surging tanker rates
The average time charter equivalent (TCE) rate for very large crude carriers (VLCCs) surged to more than $120,000 per day, while TCE rates for Suezmax and Aframax vessels average about $77,000 and $58,000 per day, respectively.
Okeanis Eco Tankers was locking in even higher rates. In fact, at the start of the second quarter, the company had an average TCE rate of $223,900 per day for its fleet of VLCCs, and it also booked an average TCE rate of $187,300 per day for its Suezmax vessels.
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As a result, Okeanis Eco Tankers achieved blowout results in its second quarter.
Revenue soared 239.6% year-over-year to $318.9 million, while earnings surged 602.4% year-over-year to $5.90 per share.
Following the massive earnings and revenue beat, analysts revised third-quarter earnings estimates a whopping 305.5% higher.
Positive earnings revisions typically precede future earnings surprises. So, don’t be surprised if Okeanis Eco Tankers posts its fifth-straight quarterly earnings surprise.
My stock grading system rates ECO as an A and is a Conservative buy below $80.
International Seaways, Inc. (INSW) benefits from higher rates across its fleet
The company operates a much larger fleet than Okeanis Eco Tankers, with 73 vessels that include VLCCs, as well as Suezmax, Aframax, LR1 and MR tankers.
In the second quarter, International Seaways achieved a TCE rate of $51,500 per day across its entire fleet. That led to total shipping revenue jumping 138.8% year-over-year to $467.29 million, which topped estimates of $399.43 million.
International Seaways also reported that second-quarter adjusted earnings soared 485% year-over-year to $294.97 million, or $5.91 per share.
Looking forward, the analyst community remains optimistic that elevated shipping rates will continue to add to International Seaways’ top and bottom lines. Third-quarter earnings are currently forecast to surge 416.7% year-over-year to $5.27 per share, and revenue is expected to more than double year-over-year to $397.19 million.
My stock grading system rates INSW as an A and is a Conservative buy below $114.
DHT Holdings, Inc. (DHT) locks in stronger shipping rates
In the first quarter, the company locked in an average TCE of $78,800 per day for its vessels. That number jumped to $126,700 per day in the second quarter, with VLCCs in the spot market achieving $162,600 per day and VLCCs on time charter recording $90,800 per day.
As a result, DHT reported that shipping revenue increased 122.7% year-over-year to $284.8 million, and earnings surged 251.4% year-over-year to $1.23 per share in the second quarter.
Now, the third quarter is shaping up to be even stronger. DHT recently revealed that it has booked an average rate of $139,700 per day. Given this outlook and the better-than-expected second-quarter results, analysts have upped third-quarter earnings estimates by 92.6% in the past three months.
My stock grading system rates DHT as an A and is a Conservative buy below $23.
For more information about my stock grading system, click here.
