The International Energy Agency (IEA) expects the global oil tanker industry to face near-term headwinds. It expects 2.5 million b/d of Russian crude and product exports to vanish from the market beginning this month. “The prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock,” the report noted.
The industry is expected to resume high activity and longer average distances once the sector manages to reorganize its trade routes due to the current geopolitical unrest in Ukraine. However, it might take some time before greater clarity is achieved. According to the S&P Global report, the market needs to replace approximately 2.6 million b/d of Russian exports, which have been displaced mostly by boycotts in response to Russia’s Ukraine invasion.
Given this situation, we think the fundamentally weak oil tanker stocks Euronav NV (EURN), Frontline Ltd. (FRO), Scorpio Tankers Inc. (STNG), and DHT Holdings, Inc. (DHT) might best be avoided. These stocks look overvalued at current prices.
Euronav NV (EURN)
Headquartered in Antwerp, Belgium, EURN engages in the ocean transportation and storage of crude oil worldwide. The company owns and operates a fleet of vessels, including chartered-in vessels.
On April 7, EURN and FRO announced that they had signed a term sheet on a potential stock-for-stock combination of two companies, based on an exchange ratio of 1.45 FRO shares for every EURN share. The combined group is expected to continue under the name Frontline.
In terms of its forward EV/Sales, EURN is currently trading at 5.75x, which is 156.2% higher than the 2.24x industry average. Its 116.44 forward EV/EBIT multiple is 964.7% higher than the 10.94 industry average.
For its fiscal fourth quarter of 2021, EURN’s revenue decreased 12.6% year-over-year to $117.42 million. Its loss for the period increased 24% from the prior-year quarter to $72.18 million. Its proportionate EBITDA declined 22.7% from the same period in the prior year to $38.84 million.
The $98.27 million consensus revenue estimate for its fiscal first quarter, ended March 31, 2022, indicates a 13.4% year-over-year decline.
The stock has declined 3.9% in price intraday to close yesterday’s trading session at $11.24.
EURN’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
EURN has a Value grade of F and a Growth, Stability, and Quality grade of D. In the 96-stock Energy – Oil & Gas industry, it is ranked #90. Click here to see the additional POWR Ratings for EURN (Momentum and Sentiment).
Frontline Ltd. (FRO)
FRO is a shipping company that operates globally in the seaborne transportation of crude oil and oil products. Based in Hamilton, Bermuda, the company owns and operates oil product tankers.
On April 2, FRO announced that Frontline Shipping Limited (FSL) has agreed with SFL Corporation Ltd. to terminate the long-term charters for the 2004-built very large crude carriers Front Force and Front Energy upon the sale and delivery of the vessels by SFL to an unrelated third party. FRO is expected to pay a total compensation payment of approximately $4.50 million for the termination of the current charters.
FRO’s 47.25 forward P/E multiple is 354.2% higher than the 10.40 industry average. In terms of its forward EV/Sales, the stock is trading at 6.97x, which is 210.8% higher than the 2.24x industry average.
For its fiscal fourth quarter, ended December 31, FRO’s net cash provided by operating activities decreased 4.6% year-over-year to $25.24 million. Its net cash used in investing activities increased 525.6% from the prior-year period to $142.76 million. The company’s cash, cash equivalents, and restricted cash balance came in at $113.07 million, down 40.4% from the prior-year period.
The Street’s revenue estimate for its fiscal first quarter, ended March 31, 2022, of $105.43 million reflects a 1.6% year-over-year decrease.
The stock has gained marginally over the past month to close yesterday’s trading session at $9.45.
It is no surprise that FRO has an overall D rating, which translates to Sell in our POWR Ratings system.
FRO has a D grade for Value, Stability, and Quality. It is ranked #89 in the Energy – Oil & Gas industry. To see the additional POWR Ratings for Growth, Momentum, and Sentiment for FRO, click here.
Scorpio Tankers Inc. (STNG)
STNG engages in the seaborne transportation of refined petroleum products in the global shipping markets. The company’s fleet consists of owned, finance-leased, or bareboat chartered-in tankers. STNG is based in Monaco.
On March 28, STNG announced that the company had agreed with Carbon Ridge LLC to collaborate on the development of onboard carbon capture for maritime vessels. However, it might be some time before this collaboration delivers substantial gains.
In terms of its forward P/E, STNG is currently trading at 120.29x, which is 1,056.4% higher than the 10.40x industry average. Its 5.46 forward EV/Sales multiple is 143.4% higher than the 2.24 industry average.
For the fiscal year 2021, STNG’s revenue decreased 41% year-over-year to $540.79 million. Its net income declined 349.1% from the prior year to a negative $234.44 million, while its adjusted EBITDA decreased 67.5% year-over-year to $174.73 million.
Analysts expect STNG’s EPS to be negative $0.61 for the quarter ended March 31, 2022, and negative $0.06 for the quarter ending June 30, 2022.
STNG’s shares have declined 1.2% in price over the past five days to close yesterday’s trading session at $21.15.
STNG’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.
STNG has a Value, Stability, and Sentiment grade of D. It is ranked #87 in Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for Growth, Momentum, and Quality for STNG.
DHT Holdings, Inc. (DHT)
DHT is the owner and operator of crude oil tankers primarily in Monaco, Singapore, and Norway. The company is headquartered in Hamilton, Bermuda.
DHT’s 48.98 forward P/E multiple is 370.8% higher than the 10.40 industry average. In terms of its forward EV/EBIT, the stock is trading at 29.09x, which is 166% higher than the 10.94x industry average.
For its fiscal fourth quarter, ended December 31, DHT’s shipping revenues decreased 7.9% year-over-year to $83.84 million. Its net income after tax and net income per share stood at negative $2.90 million and negative $0.02, down 138% and 150%, respectively, from the same period the prior year.
Analysts expect DHT’s revenue to decline 40% year-over-year to $42.74 million for its fiscal quarter, ended March 31, 2022.
The stock has declined 1.3% in price over the past year and 5.6% over the past six months to close yesterday’s trading session at $6.08.
DHT has an overall D rating, which translates to Sell in our POWR Ratings system. The stock also has a D grade for Growth, Value, and Stability. It is ranked #85 in the Energy – Oil & Gas industry.
In addition to the POWR Rating grades we have stated above, one can see DHT ratings for Momentum, Sentiment, and Quality here.
EURN shares were trading at $12.17 per share on Thursday morning, up $0.93 (+8.27%). Year-to-date, EURN has gained 36.90%, versus a -6.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
Beware of These 4 Overvalued Oil Tanker Stocks StockNews.com
