Shares of Teekay Tankers (TNK) are trading lower near noon after Bank of America downgraded the stock to Neutral following the company’s third quarter report earlier this week. In addition to the results, which were mixed relative to Wall Street expectations, Teekay Tankers announced an agreement to acquire Teekay Corporation’s (TK) Australian operations.
EARNINGS: On October 30, Teekay Tankers reported Q3 adjusted earnings per share of $1.84 on revenue of $243.28M. According to Bloomberg, analysts expected the company to report Q3 adjusted EPS of $1.88 on revenue of $152.8M. Despite the Q3 revenue beat, revenue for the quarter was roughly $42M lower than in the same period a year prior.
“Teekay Tankers continued to generate strong earnings and free cash flow through the third quarter, as rates remained historically strong for what is typically the weakest quarter of the year,” commented Kenneth Hvid, Teekay Tankers’ president and CEO. “Tanker tonne-mile demand has remained firm, near-term fleet supply growth remains limited, and we are seeing several of the market’s seasonal headwinds already transitioning into tailwinds for the fourth quarter. With a large number of dry dockings completed within the third quarter and a fleet deployment strategy heavily weighted towards the spot market, we believe Teekay Tankers is well-positioned to benefit from the anticipated seasonal uplift.”
TEEKAY AUSTRALIA: In the same earnings release, Teekay Tankers said that, in October 2024, it agreed to acquire Teekay Australia from Teekay for $65M in cash. Teekay Australia provides crew management, technical management, asset management, and procurement services primarily to the Australian government, as well as to other oil and gas customers in Australia. The company’s Board of Directors’ Conflicts Committee, comprised of independent directors, reviewed the financial valuation of Teekay Australia and obtained an independent fairness opinion from Deloitte LLP in respect of the purchase price. In addition, the company agreed to acquire from Teekay all management service companies not currently owned by the company for a purchase price equal to their net working capital value. Following the completion of these acquisitions, the company will employ directly all of the employees supporting its businesses and be the sole operating platform within the Teekay Group. These transactions are subject to customary closing conditions and are expected to be completed by December 31, 2024.
BOFA DOWNGRADE: Following the report, BofA analyst Ken Hoexter downgraded Teekay Tankers to Neutral from Buy and cut the firm’s price target on the shares to $51 from $57. While the company expects spot rates to increase significantly as winter approach, rates are off a lower base, given weaker Q3 levels, the analyst told investors in a research note. Additionally, the firm said its lowered price target has moved to the bottom of the stock’s historical 3x-7x range as tanker rates sustain “historic” levels and as the orderbook begins to rise.
PRICE ACTION: Around midday on Friday, Teekay Tankers shares are down 2% at under $47.