Geopolitics have had a profound effect on the shipping industry. For some, it proved challenging; for others, like “Safe Bulkers” (NYSE:SB), this challenge proved profitable, and a compelling choice for income-oriented investors.
The embargo on Russian oil and hostilities in the Middle East has constrained the supply of shipping routes. Ships avoid the Suez Canal and defer to lengthier routes via the Cape of Good Hope between Europe and Asia.
This has resulted in a significant rise in shipping costs. However, Safe Bulkers stock tells a different story; it has been up roughly 65% over the past year, and a recent strong earnings report suggests there is more upside yet to come, making the stock intriguing for potential investors.
Safe Bulkers Optimistic Outlook
Safe Bulkers Inc. is a global provider of marine dry-bulk transportation services and operates a fleet of 46 vessels handling primarily grain, coal, and iron ore shipments worldwide. As of April 19, 2024, the fleet consists of various vessel types, including Panamax, Kamsarmax, Post-Panamax, and Capesize, boasting an aggregate carrying capacity of 4.6 million dwt (deadweight tonnage).
The increase in traffic away from the Red Sea and Suez have increased demand for smaller ships, which has been a benefit to Safe Bulkers given the sizable portion of their fleet Post-Panamax size and below. Also, due to the relatively young age of their fleet, Safe Bulkers enjoy greater efficiencies than many competitors.
Despite delays in anticipated interest rate cuts, the company maintains an optimistic outlook due to a resilient global economic forecast. This optimism is driven by the IMF’s forecast of a 3.2% expansion in global GDP for 2024 and 2025 and control over inflationary pressures. In particular, China’s projected GDP growth of 4.6% in 2024, India’s robust domestic demand, and continual infrastructure investments contribute towards this positive sentiment.
Furthermore, a promising dry bulk freight market outlook is expected due to the low order book and a forecasted 3% increase in global dry bulk demand for 2024.
Analysis of “Safe Bulkers” Recent Financial Results
The company reported a net income of $25.3 million during the first quarter of 2024, a significant increase from the net income of $19.3 million achieved during the same period in 2023. This amounts to a growth rate of approximately 31% in net income.
The adjusted earnings per share (EPS) for the initial quarter of 2024 was $0.20, twice as much as the EPS of $0.10 during the corresponding period of 2023. This calculation is based on a weighted average count of 100.4 million shares in 2024 as opposed to 118.4 million shares in 2023.
Notably, the company’s Board of Directors has declared a cash dividend of $0.05 per share of outstanding common stock, translating to a dividend yield of over 4%, well above the Industrial Goods Sector Average of 1.64%.
Is SB Stock a Buy?
Safe Bulkers is rated a Moderate Buy based on the ratings and 12-month price targets issued in the past three months by the two Wall Street analysts. The average price for Safe Bunkers’ target is $5.90, representing an 8.46% change from current levels.
Analysts following the company have been constructive on the stock. For example, Jefferies analyst Omar Nokta recently upgraded Safe Bulkers to Buy and set a price target of $6. He believes the Red Sea diversions will likely remain in place for an extended period, thus keeping spot rates higher. The company’s newer fleet and smaller vessels are positioned well for upcoming emission regulations.
SB Stock in Summary
Safe Bulkers is well-positioned, along with its growing fleet of vessels, to benefit from elevated shipping costs and pending shifts to more eco-friendly emissions regulations. The stock continues to demonstrate positive price momentum, and the dividend yield is attractive. Income investors looking for a solid option in the industry might find this one compelling.
