Scorpio Bulkers To Exit Dry Bulk Sector In 2021; Street Is Bullish

Scorpio Bulkers has approved the sale of its remaining dry bulk vessels as part of its plan to exit the dry bulk sector in 2021 and invest in the next generation of wind turbine installation. The announcement follows recent divestments of vessels by the provider of marine transportation of dry bulk commodities.

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Scorpio Bulkers (SALT) has recently sold eight vessels and has contracted to sell 16 additional vessels, all of which are expected to close in the first half of 2021. The company set itself a target to divest its 25 remaining wholly-owned and finance leased drybulk vessels during 2021.

As a result of the vessel sales, Scorpio expects to record an impairment charge of between $475 million and $500 million. The impairment includes non-cash charges of between $425 million and $440 million to reflect the current fair market value of the fleet.

The company estimates $50 million to $60 million in cash charges due to the termination of various vessel-related agreements, and other selling costs. It will also write-off close to $10 million of deferred financing costs following the settlement of its outstanding debt.

Additionally, the company’s board will seek shareholders’ approval to change the company name by Jan. 8, 2021.

Meanwhile, the stock price has lost 73% year-to-date and is trading at a discount of 74% to its 52-week high. (See SALT stock analysis on TipRanks)

B. Riley Securities analyst Liam Burke recently reiterated a Buy rating on the stock, but lowered the price target from $35 (74% upside potential) to $30 following the company’s Q3 results.

Burke sees a narrowing gap between Scorpio Bulkers’ share price and net asset value “through opportunistic asset sales.”

From the rest of the Street, the stock scores a Strong Buy analyst consensus based on 4 unanimous Buys. The average price target of $23 implies upside potential of 33.5% at current levels.