The marine shipping industry has rebounded impressively over the past few years, and riding this wave is Frontline (FRO), a Cyprus-based seaborne transporter of oil. The company possesses a fleet of 86 versatile vessels and a robust capacity of approximately 18.8 million DWT and has seen meaningful year-over-year revenue growth, helping to drive the stock up over 257% in the past three years.
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Despite fluctuating oil prices and geopolitical tensions, the firm has capitalized on high crude oil demand from Asia and ample supply from South America and the U.S., exceeding revenue expectations in the past few quarters. Furthermore, Frontline trades at a discount to industry peers while paying a generous 9.4% dividend yield, making this stock a compelling Oil & Gas Midstream option for value investors with an income orientation.
Frontline’s Strategic Restructuring of Fleet Paying Dividends
Frontline is a player in the commodity shipping industry, serving various markets, including crude oil, petroleum products, dry bulk, and liquefied petroleum gas. The company boasts one of the largest fleets in the industry, including 41 Very Large Crude Carriers (VLCCs), 23 Suezmax tankers, and 18 LR2/Aframax tankers. Leveraging its brand image, financial flexibility, and scale, the company has solidified a unique position among industry competitors.
Frontline has made significant strides in restructuring its financial state and adopting strategies to run its large fleet efficiently and profitably. A notable recent step has involved freeing up capital by re-leveraging portions of the existing fleet and divesting older, non-eco vessels. These strategic moves enabled the repayment of an aggregate of $395.0 million in loans and senior unsecured revolving credit facilities.
In addition, a commitment was secured in the third quarter for a sale-and-leaseback agreement to refinance 10 Suezmax tankers. This agreement is expected to generate net cash proceeds of approximately $101.0 million in the last quarter of 2024, further aiding in repaying the remaining $75.0 million drawn from the credit facility.
Analysis of Frontline’s Recent Financial Results
The company recently reported its financial results for Q2 2024 with a revenue of $556.03 million, which surpassed analysts expectations, beating by $170.09 million while marking an 8.4% year-over-year increase. However, not all were painted in pink as net income fell to $187.6 million, dropping 19% from Q2 2023, and the profit margin shrank from 45% to 34%, caused by higher expenses. Meanwhile, the adjusted profit was $138.2 million, with non-GAAP earnings per share (EPS) of $0.84, exceeding consensus expectations by $0.08.
As of the quarter’s end, the company reported liquidity of $567 million in cash and cash equivalents. Furthermore, the company has fulfilled its new-building commitments and won’t face significant debt maturities until 2027.
The company declared a cash dividend of $0.62 per share for a second consecutive quarter, equating to a dividend yield of 9.4%.
What Is the Price Target for FRO Stock?
The stock has enjoyed a multi-year upward trajectory, climbing roughly 450% over the past ten years. It trades near the middle of its 52-week price range of $15.94 – $29.39 and shows negative price momentum, trading below the 20-day (23.33) and 50-day (23.85) moving averages. It trades at a deep relative value, with a P/E ratio of 6.9x, roughly half that of the Oil & Gas Midstream industry average of 12.9x.
Analysts covering the company have been constructive on FRO stock. For instance, DNB Markets analyst Jorgen Lian, a five-star analyst according to Tipranks’ ratings, recently reiterated a Buy rating on the shares while lowering the price target from $32.97 to $31.78, noting the price target change reflects a seasonal slump and recent freight market trends. However, he maintains that improvements are on the horizon in Q4.
Frontline is rated a Strong Buy based on four analysts’ recent recommendations and price targets. The average price target for FRO stock is $33.60, representing a potential upside of 51.15% from current levels.
Final Analysis on Frontline
Frontline has posted substantial revenue growth over the past few years and is poised for continued success. The company’s strategic fleet restructuring has significantly improved operational efficiency, allowing it to navigate fluctuating oil prices and geopolitical tensions. The stock trades at a deep relative discount while paying a healthy dividend yield, making FRO an attractive investment option for income-focused value investors.
