As global freight demand rises, the shipping industry is expected to grow steadily due to the expanding trade networks, surging maritime trade volumes, more free-trade deals, and increased government initiatives and spending.
Given this backdrop, it could be wise to buy fundamentally strong shipping stocks: Top Ships Inc. (TOPS), Teekay Corporation (TK), and Overseas Shipholding Group, Inc. (OSG).
Before diving deeper into their fundamentals, let’s discuss what’s happening in the shipping industry.
Ocean shipping is the main transportation mode for global trade, with around 90% of traded goods being shipped over water. With the expansion of global trade, the demand for shipping services is expected to grow in the long term. Additionally, signing free trade agreements (FTA) and opening new ports are expected to boost the industry’s prospects.
Ocean freight rates have been rising as crude oil prices steadily climb upward due to production cuts by OPEC+ and Russia. Moreover, the resurgence of the Chinese economy is expected to boost freight rates. As demand for global freight rises, maritime trade volumes are poised to triple by 2050.
With federal support, the United States is leading in the transition to zero-emission shipping. Initiatives like the Inflation Reduction Act have allocated $3 billion in rebates and grants channeled through the Environmental Protection Agency to fund zero-emission equipment and technology.
According to a Research and Markets report, the maritime digitization market is expected to grow at a CAGR of 14.2% from 2023 to 2031. Additionally, the Department of Transportation has allocated around $703 million to enhance port facilities in 22 states and one territory through the Maritime Administration's Port Infrastructure Development Program.
Moreover, the growth of the digital freight forwarding industry, coupled with automation, is fostering lucrative opportunities. The global digital freight forwarding market is anticipated to reach $22.92 billion by 2030, growing at a CAGR of 23.1%. As per a report by Market Research Future, the global cargo shipping market is set to reach $20.67 billion by 2027, growing at a CAGR of 5.2%.
Considering these conducive trends, let’s analyze the fundamentals of the three Shipping industry picks, beginning with the third choice.
Stock #3: Top Ships Inc. (TOPS)
Based in Maroussi, Greece, TOPS owns and operates tanker vessels worldwide. The company's medium-range tanker vessels transport crude oil, petroleum products, and bulk liquid chemicals. Its fleet includes one 50,000 dwt product/chemical tanker, five 157,000 dwt Suezmax tankers, two 300,000 dwt very large crude carriers, and two 50,000 dwt product tankers.
TOPS’ revenue grew at a CAGR of 6.4% over the past three years. Its EBITDA grew at a CAGR of 19.4% over the past three years. Moreover, its EBIT grew at a CAGR of 34.3% over the past three years.
In terms of the trailing-12-month EBITDA margin, TOPS’ 58% is 49.9% higher than the 38.69% industry average. Likewise, its 44.82% trailing-12-month levered FCF margin is 573.1% higher than the 6.66% industry average. Furthermore, its 40.70% trailing-12-month EBIT margin is 67.7% higher than the 24.27% industry average.
TOPS’ total revenues for the six months that ended on June 30, 2023, increased 5.9% year-over-year to $41.15 million. Its operating income rose 7.5% year-over-year to $16.27 million.
The company’s net income and comprehensive income attributable to common shareholders came in at $2.29 million, compared to a net loss and comprehensive loss attributable to common shareholders of $13.12 million in the year-ago quarter. In addition, its EPS came in at $0.10, compared to a loss per common share of $6.15 in the year-ago quarter.
Analysts expect TOPS’ EPS for fiscal 2024 to increase 120% year-over-year to $2.64. Its revenue for the fiscal 2023 is expected to increase 3.2% year-over-year to $83.20 million. Over the past month, the stock has gained 9.73% to close the last trading session at $8.98.
TOPS’ positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and a B for Value, Sentiment, and Quality. It is ranked #4 out of 43 stocks in the B-rated Shipping industry. To see TOPS’ Growth and Stability ratings, click here.
Stock #2: Teekay Corporation (TK)
Headquartered in Hamilton, Bermuda, TK engages in international crude oil and other marine transportation services worldwide. The company owns and operates crude oil and refined product tankers. It also provides ship-to-ship support services, tanker commercial management and technical management operation services, and operational and maintenance marine services.
TK’s tang book value grew at a CAGR of 17.7% over the past three years.
In terms of the trailing-12-month EBIT margin, TK’s 36.71% is 51.3% higher than the 24.27% industry average. Likewise, its 25.04% trailing-12-month levered FCF margin is 276.1% higher than the 6.66% industry average. Furthermore, its 0.74x trailing-12-month asset turnover ratio is 20.9% higher than the 0.61x industry average.
TK’s revenues for the second quarter ended June 30, 2023, increased 40.8% year-over-year to $395.40 million. Its income from vessel operations increased 488.5% year-over-year to $157.67 million. Its adjusted net income attributable to shareholders came in at $42.77 million, representing an increase of 676.8% year-over-year.
Its adjusted EBITDA rose 258.1% year-over-year to $182.05 million. Additionally, its adjusted net EPS attributable to shareholders of TK came in at $0.45, representing an 800% increase year-over-year.
Over the past year, TK has gained 74.6% to close the last trading session at $6.72.
It’s no surprise that TK has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
It has an A grade for Value, Momentum, and Quality and a B for Growth. It is ranked #2 in the same industry. For additional ratings of TK for Stability and Sentiment, click here.
Stock #1: Overseas Shipholding Group, Inc. (OSG)
OSG owns and operates a fleet of oceangoing vessels in the United States. Its vessels transport crude oil and petroleum products in the United States flag trade.
On October 12, 2023, OSG announced an agreement with BP Oil Shipping Company, USA, to acquire the tank vessel Alaskan Frontier, intending to reactivate it with engine upgrades for improved performance, fuel efficiency, and reduced carbon emissions. In cold layup since 2019, the vessel will return to commercial trade by the fourth quarter of 2024.
Sam Norton, President and CEO at OSG, predicts that the Alaskan Frontier's acquisition, along with lifecycle engine upgrades and reactivation work, will enhance OSG's capacity to meet increasing demand due to expanded crude oil production in Alaska.
OSG’s revenue grew at a CAGR of 5.6% over the past three years. Its net income grew at a CAGR of 7.3% over the past three years. Moreover, its EPS grew at a CAGR of 7.9% over the past three years.
In terms of the trailing-12-month levered FCF margin, OSG’s 26.25% is 294.3% higher than the 6.66% industry average.
OSG’s time and bareboat charter revenues for the second quarter ended June 30, 2023, increased 5.2% year-over-year to $87.26 million. The company’s operating income rose 60.3% year-over-year to $20.27 million. Its net income rose 229% year-over-year to $12.30 million. Its adjusted EBITDA increased 25.4% year-over-year to $39.47 million.
Additionally, its class-A EPS came in at $0.15, representing an increase of 275% year-over-year.
OSG has gained 58.8% year-to-date to close the trading session at $4.59.
OSG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth and Quality. It is ranked first in the Shipping industry. Click here to see OSG’s Value, Stability, and Sentiment ratings.
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TK shares were trading at $6.76 per share on Wednesday afternoon, up $0.04 (+0.60%). Year-to-date, TK has gained 48.90%, versus a 14.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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