The shipping industry is set for steady growth amid rising demand for global freight and the expansion of international trade networks. In light of this, it might be prudent to consider investing in robust shipping stocks Danaos Corporation (DAC), Dynagas LNG Partners LP (DLNG), and Euroseas Ltd. (ESEA), which are poised to rise this year-end.
Before we delve into the stock analysis, let us understand the current dynamics in the shipping industry.
The recent Houthi rebel attacks prompting ships to avoid the Red Sea are set to boost tanker and container shipping rates. Vessels diverting around Africa's Cape of Good Hope will increase demand and limit transport capacity, potentially leading to higher freight rates, especially benefiting container shipping companies.
Moreover, the shipping industry holds substantial prospects for enduring growth, driven by factors such as global trade dynamics, the influence of free trade agreements, ongoing port construction initiatives, and government investments.
Additionally, the shipping industry is rapidly embracing digitalization, accelerated by the impact of the COVID-19 pandemic and the shift to remote work. On top of it, artificial intelligence (AI) and blockchain technology are expected to enhance real-time shipment tracking and supply chain visibility further.
Furthermore, the global cargo shipping market has undergone a significant transformation over the past decade, driven by changing trade patterns, technological advancements, and environmental regulations. This evolution has made cargo shipping integral to the global economy, particularly with the rise of e-commerce and globalization.
As a result, the global cargo shipping market is expected to expand at a CAGR of 3% until 2028.
With these favorable trends in mind, let's delve into the fundamentals of the three Shipping stock picks, beginning with the third choice.
Stock #3: Danaos Corporation (DAC)
Based in Piraeus, Greece, DAC and its subsidiaries own and operate containerships in Australia, Asia, Europe, and the United States. The company offers seaborne transportation services, such as chartering its vessels to liner companies.
As of November 11, 2023, DAC had repurchased a total of 1,570,195 shares of its common stock in the open market for $97.4 million under the previously announced share repurchase program of up to $100 million in June 2022. Additionally, its Board approved another share repurchase program of up to $100 million on November 10, 2023.
In September 2023, the company entered into agreements to acquire two Capesize bulk carriers, with a combined DWT of 351,765, for a total of $36.6 million. The delivery of these vessels is expected between November and December 2023.
On December 6, 2023, DAC paid its shareholders a dividend of $0.80 per share of common stock for the third quarter of 2023. Its annual dividend of $3.20, which yields 4.53% on the current market prices, higher than the four-year average of 2.23%.
During the fiscal third quarter ended September 30, 2023, DAC’s operating revenues came in at $239.22 million. The company’s adjusted net income came in at $142.96 million and $7.26 per share. Its adjusted EBITDA stood at $178.03 million.
As of September 30, 2023, DAC’s total current assets stood at $498.20 million compared to $372.52 million as of December 31, 2022. Also, its total current liabilities stood at $173.08 million compared to $228.41 million for the same period.
Street expects DAC’s EPS to rise 11.4% year-over-year to $7.79 in the fiscal fourth quarter ending December 2023. Its revenue for the same quarter is likely to be $245.69 million. The company has exceeded the consensus revenue estimates in each of the trailing four quarters, which is remarkable.
The stock has gained 39.5% over the past year to close the last trading session at $71.80. It has soared 11.4% over the past three months.
DAC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It also has an A grade for Quality and a B for Value and Momentum. It is ranked #6 out of 42 stocks in the B-rated Shipping industry.
Beyond what is stated above, we’ve also rated DAC for Growth, Stability and Sentiment. Get all DAC ratings here.
Stock #2: Dynagas LNG Partners LP (DLNG)
Headquartered in Athens, Greece, DLNG operates in the seaborne transportation industry worldwide through its subsidiaries. The company owns and operates liquefied natural gas (LNG) carriers.
In November, DLNG paid a quarterly cash distribution of $0.5625 on Series A Preferred Units and $0.546875 on Series B Preferred Units.
During the fiscal third quarter ended September 30, DLNG’s voyage revenues increased 23.7% year-over-year to $37.01 million. The company’s operating income rose 112.5% year-over-year to $9.39 million. Its adjusted net income came in at $3.13 million and $0.01 per share. Its adjusted EBITDA increased 1.9% year-over-year to $20.38 million.
Analysts expect DLNG’s EPS and revenue to increase 172.7% and 9% year-over-year to $0.30 and $38.21 million, respectively, in the fiscal fourth quarter ending December 2024. Also, it has surpassed the consensus revenue estimates in all the four trailing quarters.
Over the past year, the stock has gained 7.3% to close the trading session at $2.66.
DLNG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Stability, Sentiment, and Quality. It is ranked #4 in the same industry.
Click here to see the DLNG’s additional POWR Ratings for Growth and Value.
Stock #1: Euroseas Ltd. (ESEA)
Based in Marousi, Greece, ESEA provides ocean-going transportation services worldwide. The company owns and operates containerships that transport dry and refrigerated containerized cargo, including manufactured products and perishables.
On December 19, ESEA completed the installation of a number of “energy saving devices” on its 4,250 teu feeder containership, M/V Synergy Busan, aiming to improve its consumption in the commercial speed range by about 20%.
Aristides Pittas, Chairman and CEO of ESEA, commented, “We are pleased to announce the completion of retrofits for our M/V Synergy Busan, as a result of which we expect that the vessel’s commercial attractiveness as well as its economic life will increase. Following these modifications, M/V Synergy Busan will be amongst the most competitive vessels of her vintage.”
While ESEA’s four-year average dividend yield is 2.67%, the company’s annual dividend of $2 yields 6.55% at the current price level.
In the fiscal third quarter that ended September 30, 2023, ESEA’s revenue increased 12.1% year-over-year to $50.67 million. Its operating income rose 34.6% from the year-ago quarter to $33.24 million. Moreover, its adjusted net income grew 35% and 40.7% year-over-year to $28.18 million and $4.08 per share.
ESEA’s revenue and EPS are expected to improve 13.8% and 16.1% year-over-year to $48.79 million and $3.32 in the fiscal fourth quarter ending December 2023. Additionally, the company has an impressive earnings surprise history, beating the consensus revenue and EPS estimates in each of the trailing four quarters.
ESEA’s shares have returned 65.4% year-to-date and 44.9% over the past six months to close the last trading session at $30.52.
ESEA’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
It also has an A grade for Sentiment and a B for Value, Momentum, and Quality. It is ranked #3 within the same industry.
To access ESEA’s additional Growth and Stability ratings, click here.
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DAC shares were trading at $71.70 per share on Wednesday morning, down $0.10 (-0.14%). Year-to-date, DAC has gained 42.81%, versus a 25.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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