Bulk Star: financial strength and a high yield

The global shipping industry has been volatile over the past year. Following supply chain disruptions during the pandemic and geopolitical upheavals in 2022 following Russia’s invasion of Ukraine, price volatility has emerged in Drewry. World Container Index.

The good news for investors in many companies in the shipping industry is that the cost of moving cargo, particularly in the dry bulk segment, has generally increased more than 12 months ago. Prices set at least a short-term peak in July, perhaps amid concerns about the health of the global economy.

I have a buy rating on one of the industry’s leading players: Star Bulk Carriers (NASDAQ:SBLK). While the company is certainly susceptible to macro developments, its financial position is strong, allowing it to pay high dividends to shareholders while its fundamental valuation is attractive.

Earlier this year, SBLK’s management team issued an upbeat outlook on the state of its dry bulk business, highlighting full-year growth. However, I will highlight at the end of the article some concerns on the chart as we head towards the end of 2024.

Dry bulk tuna-miles are expected to increase in 2024

In August, Star Bulk reported a mixed set of quarterly results. Q2 non-GAAP EPS of $0.78 missed the Wall Street consensus forecast by a nickel, while revenue of $353 million, up 48% from year-ago levels, was a significant battery of 83 million USD. While shares were mostly flat in the session that followed, the company reported net income of $106 million on adjusted net income of $89 million, while issuing a solid, albeit sequentially lower, $0.70 quarterly dividend.

So far in 2024, 10 vessels have been sold by the $2.4 billion market capitalization company, and the acquisition of Eagle Bulk was completed in the first half of the year. With liquidity now standing at $516 million, of which $486 million is in cash, I believe Star Bulk is in a good position to weather any potential macro or industry-specific volatility in the coming quarters.

As long as demand for dry bulk and other shipping activities persists, SBLK’s new synergies with the integration of Eagle Bulk should create gains in my view. Meanwhile, investors are paid to expect more stable profit trends in the coming years solid dividend policyamong the best of its competitors and a clean overall balance sheet.

Star Bulk Dividend Policy

Key risks include continued economic weakness in China. With steel production falling and weak energy demand from the world’s second economy, there could be pressure on freight rates and freight demand next quarter. Several investment banks have recently cut their outlook for China’s GDP as more data emerges for 2024. A decline in coal trade volumes could also hamper SBLK’s performance, while any increase in geopolitical conflicts it would also be a fundamentally negative catalyst.

On earnings perspectiveOperating EPS is expected to be stable just under $4 per share over the next two years. That gives us a pretty good idea of ​​how to value the stock – recent annual volatility in non-GAAP earnings per share has made valuing SBLK difficult. First, revenues are likely to grow at a decent level over the past year and into 2025.

For the third-quarter report due in August, analysts expect $0.75 in normalized EPS on revenue of $273 million — both figures would be massive increases from last year ($0.34 and 165, USD 5 million in Q3 2023).

SBLK: EPS Seen Near $4 Over Next Two Years, Rising Revenue

At the evaluationSBLK’s current P/E ratio is very depressed relative to history, but the price-to-sales multiple suggests that the valuation is roughly fair. On an EV/EBITDA basis, SBLK looks about 10% cheap.

If we assume normalized EPS of $3.75 over the next 12 months and apply a P/E of 7x, which I say is guaranteed with little earnings growth beyond next year, then the stock should be close to 26.25 USD.

SBLK: Favorable, cheap valuation measures for earnings

Compared to its peersStar Bulks has a very strong valuation rating while its growth trajectory has been healthy. Profitability trends are also impressive, highlighted by free cash flow per share of $3.86, nearly 19% of the stock’s current price.

But stock price momentum it’s been easy in recent months – the stock is down about 25% from its Q2 peak. finally, EPS revisions on the sell side were mixed, with three downgrades compared to one upgrade. Deutsche Bank made headlines earlier this week by backing SBLK.

Analysis of the competition

Looking ahead, data on corporate events provided by Wall Street Horizon shows an unconfirmed Q3 2024 earnings date of Tuesday, November 19, after the market close. Before that, watch out for potential volatility as Star Bulk’s management team is expected to present at Capital Link 14th Annual Maritime Operational Excellence Forum 2024 later this month.

Risk calendar of corporate events

Technical takeover

With mixed industry trends and favorable valuation, SBLK’s technical situation is mixed. Notice in the chart below that the stock is now in a trading range with support between $16 and $17, while resistance is evident just below the $28 mark. Recently, a negative development was a negative development of a bearish death cross where the short-term 50-day moving average crossed below the long-term 200-day moving average. Overall, the 200 dma is now flattening in slope, suggesting that the bulls are losing control of the primary trend.

Also, take a look at the RSI momentum oscillator at the top of the chart – it has ranged between 20 and 50, a particularly bearish area. Moreover, with a large amount of price-driven volume from the high-teens to the mid-$20s, there is plenty of congestion at current levels, cementing the reality of a lack of either an uptrend or a downtrend. downward.

Overall, SBLK is limited as the stock may approach key support in the coming months.

SBLK: Emerging trading range, support near $17

conclusion

I have a buy rating on SBLK. While the chart is slightly worrisome today, the valuation is attractive and the yield story is compelling. Buying on a dip to around $18 could be an opportunity for 2025.