The global shipping industry has been witnessing extreme volatility over the last six years. Despite an improving U.S. macroeconomic scenario, the drybulk shipping industry is not out of the woods yet.
However, declining oil prices over the last eight months has been a godsend for several shipping companies that predominantly provide worldwide transportation services for crude oil, liquefied natural gas (LNG) and other petroleum products.
Fuel costs account for a considerable portion of expenses of oil and LNG tankers; their momentum is likely to continue in the near-term. A rise in order bookings, higher spot and charter rates and increasing fleet utilization rates may provide handsome returns to investors going forward.
Double-Edged Sword
Vessel operators engaged in petroleum products transportation are currently poised to benefit in two ways. On one hand, lower oil price has significantly reduced the operators’ bunker fuel costs. This has been a substantial gain for oil tankers as bunkering costs constitute one of the major items of operating expenses of the shipping companies, thereby boosting the bottom-line.
On the other hand, demand for oil tankers and LNG vessels have soared owing to oil stockpiling by many countries taking advantage of low crude oil prices. Oil floating storage activity has also increased which resulted in a substantial rise in spot tanker rates. Floating storage is a technique adopted by oil companies to book large vessels to hoard oil that is sold at higher prices later.
How to Make a Selection?
With the existence of a number of industry players, finding the right stocks that have the potential to beat earnings estimates could appear to be a difficult task, but our proprietary methodology makes it fairly simple for you. One way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Zacks Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Our Top Picks
For investors seeking to apply this strategy to their portfolio, we have chosen 3 shipping stocks that may stand out this earnings season:
Tsakos Energy Navigation Ltd. (TNP): Headquartered in Athens, Greece, this Zacks Rank #2 (Buy) company is a leading provider of international seaborne crude oil and petroleum product transportation services. The company offers marine transportation services to national, major, and other independent oil companies and refiners under long, medium, and short-term charters.
For the fourth quarter of 2014, Tsakos Energy currently has an earnings ESP of +12.50%. The Zacks Consensus Estimate for earnings stands at 16 cents, reflecting year-over-year growth of a whopping 279.37%. The Zacks Consensus Estimate for revenues is pegged at $99 million, highlighting an increase of 32.00% year over year. Tsakos Energy generated a substantial positive average earnings surprise of 33.22% in the last four quarters.
GasLog Ltd. (GLOG): Based in Monaco, this Zacks Rank #3 (Hold) company owns, operates, and manages vessels in the LNG market worldwide. The company operates in two segments: vessel ownership and vessel management.
For the fourth quarter of 2014, GasLog’s earnings ESP is poised at +10.53%. The Zacks Consensus Estimate for earnings stands at 19 cents, reflecting year-over-year decline of 32.86%. The Zacks Consensus Estimate for revenues is pegged at $98 million, up a substantial 88.46% year over year. GasLog generated a moderate positive average earnings surprise of 2.38% in the last four quarters.
Golar LNG Ltd. (GLNG): Headquartered in Hamilton, Bermuda, this Zacks Rank #3 (Hold) company is engaged in the acquisition, ownership, operation and chartering of LNG carriers and floating storage re-gasification units through its subsidiaries.
For the fourth quarter of 2014, Golar LNG’s earnings ESP is pegged at an impressive +400.00%. The Zacks Consensus Estimate for earnings stands at 1 cent, reflecting year-over-year growth of a whopping 123.33%. Over the last 30 days, the consensus earnings per share estimates moved north by 2 cents.
The Zacks Consensus Estimate for revenues is pegged at $39 million, up a massive 225.00% year over year. Meanwhile, Golar LNG posted a substantial positive average earnings surprise of 48.02% in the last four quarters.
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