Recent geopolitical events have had a remarkable impact on the global shipping industry. The embargo on Russian oil and the Middle East hostility affected shipping routes, inflated costs, and caused vessel spot rates to show considerable spikes in the summer. Since then, there has been a pullback, as evidenced by a recent decline in the Baltic Exchange’s sea freight index, from 2,406 in March to 1,664 at the end of July. This has slowed the trajectory of industry players like dry-bulk shipper Safe Bulkers (SB), who are poised for smooth sailing after the industry’s turbulence.
Despite beating Q2 revenue estimates, the company has seen a pullback in its stock price, with shares down 21% in the past month. The stock pays a dividend yield of 3.67% while trading at a discount to industry peers, making this an attractive window of opportunity for income-focused value investors.
Safe Bulkers’ Management Offers Positive Outlook
Safe Bulkers is an international provider of marine dry bulk transportation services and is currently managing a fleet of 46 vessels consisting of Panamax, Kamsarmax, Post-Panamax, and Capesize ship types with an aggregate carrying capacity of 4.6 million dwt.
Despite the slower-than-expected interest rate cuts, Safe Bulkers management remains optimistic about the future based on promising global economic projections. This optimism stems from the IMF’s forecast of a 3.2% growth in global GDP for 2024 and 2025, with anticipated control over inflationary pressures. Several factors contribute to this positive outlook, including China’s expected 5% GDP growth in 2024, strong domestic demand in India, and ongoing infrastructure investments worldwide.
Additionally, trends in the dry bulk freight market are encouraging, with the low order book and a predicted 3% increase in global dry bulk demand providing further cause for optimism through the end of 2024.
Safe Bulkers’ Recent Financial Results
The company recently announced the financial results for Q2 2024. The company’s performance saw significant growth year-over-year, with revenue rising by 11% to $78.55 million, beating analysts’ expectations of $71.39 million. The net income of $27.62 million was a noticeable improvement from the $15.4 million recorded during the same period in 2023. Adjusted EBITDA for the first quarter was $41.8 million, an increase from $34.3 million in the same period last year. Earnings per share (EPS) of $0.17 marked a 5 cent year-over-year increase, though it fell short of analysts’ estimates of $0.19.
The company finished the quarter with $77 million in cash and an additional $180 million available through revolving credit facilities. Furthermore, a vessel held for sale can yield $20 million. These equate to total liquidity and capital resources of $276 million.
The company announced a cash dividend of $0.05 per share on the common stock, which equates to a dividend yield of 3.67%. This dividend will be paid on September 5, 2024.
What Is the Price Target for SB Stock?
The stock has been on an upward trajectory, climbing over 52% in the past year. It trades near the middle of its 52-week price range of $2.97 – $6.33 and demonstrates negative price momentum by trading below its 20-day (5.65) and 50-day (5.61) moving averages. With a P/E ratio of 5.95x, the stock trades at a discount to the Marine Shipping industry, with an average P/E of 10.42x.
Analysts covering the company have taken a cautious stance on the stock. For example, DNB Markets analyst Jorgen Lian, a five-star analyst according to Tipranks’ ratings, recently downgraded the stock to Hold from Buy while raising the price target from $5.60 to $6.40. Lian noted a cautious outlook on dry bulk shipping rates due to the potential reversion of current demand tailwinds centered around China.
Safe Bulkers is rated a Hold overall, based on the recommendations and price targets recently assigned by two analysts. The average price target for SB stock is $6.30, representing a 32.35% potential upside from current levels.
Safe Bulkers in Summary
Despite a recent pullback in stock price, Safe Bulkers’ robust Q2 financial performance positions it well to capture upside potential. The company’s fleet – being younger and more eco-friendly than the industry average – and positive growth outlook further reinforce its attractiveness. As Safe Bulkers navigates through industry headwinds, it remains an attractive option for income-focused value investors.
