Dahlman Rose & Company initiates coverage on DryShips with a Buy Recommendation.
New York, NY. April 6th, 2005
Dahlman Rose & Co. initiated coverage of DryShips, Inc. (NASDAQ: DRYS) with a Buy recommendation and a $26 price target. The analyst is Harvey S. Stober, CFA. DryShips is a leading provider of international seaborne transportation services for dry bulk cargoes, including iron ore, coal, grain and minor bulks.
The report highlights DryShips' strategy to employ its vessels on the spot market and short term time charters, with 65% of the current tonnage currently trading on the spot market. Also, that the company has structured its operations to pay out consistent dividends.
The analyst estimates EPS to be $4.90 and $5.65 for 2005 and 2006 respectively. At $18.54 on April 4th, when the day before report was issued, the stock trades at 3.8x 2005 earnings and 3.3x 2006 earnings. Dahlman Rose estimates free cash flow of $187.3 million in 2005, or $ 6.20 per share. With a dividend of $0.20 per quarter, the stock has an annualized dividend yield of 4.3%. DryShips trades at 3.0 times FCF compared to a bulk sector average of above five. The analyst believes that over time DryShips will improve from a 3.0 P/FCF multiple to 4.2x, thereby setting the 12-month target price of $26 at 4.2x the 2005 FCF estimate of $ 6.20 per share.
Furthermore, according to the report DryShips trades at a significant discount to the tanker sector. 2005 P/E, EV/EBITDA and P/FCF are 7.6, 6.3x and 5.8x for the tanker market and 3.8x, 5.2x and 3.0x for DryShips respectively.
Dahlman Rose's expectation for demand growth in dry bulk commodities is 4.9% and 5.0% for 2005 and 2006. This translates to incremental demand of 122.5 million DWT for 2005 and 131.1 million DWT in 2006. After taking account of expected average fleet increase of 7.75 and 9.30 million DTW in 2005 and 2006 respectively, there is an undersupply of 29.6 and 19.5 million tons in 2005 and 2005 respectively. Therefore, according to the report, rates should continue to remain strong both this year and next year.
By April 6th, there have been three reports issued on DryShips, all with buy recommendations. Namely, on March 8th, 2005 Jefferies issued a Buy recommendation with a target price of $30; then on March 29th, 2005, Cantor Fitzgerald came out with a Strong Buy recommendation and a target price of $28, and finally on April 5th, 2005, Dahlman Rose issued its own report with a Buy recommendation and a target price of $26.
For more info visit: www.dryships.com
By Capital Link, April 6, 2005.
Contact:
Nicolas Bornozis
Capital Link, Inc. (New York)
Tel. 212-661-7566
E-mail: nbornozis@capitallink.com
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