As we argued in our Dry Bulk: Sector Update in early April, share prices had moved too far too fast, disconnecting from the underlying fundamentals of the early expansionary phase of the cycle. We highlighted that the risk was skewed to the downside ahead of 2Q17E, and we issued three SELL recommendations and four Neutral. Since then, share prices have fallen some 30% before recovering somewhat in recent days, hitting or undershooting our target prices. Although share prices could fall even lower in the coming months, a period which is usually marked by a lull in activity ahead of an active Autumn market, we now find the risk/reward highly attractive. We upgrade the dry bulk sector to BUY (Neutral) and assign a BUY rating to nine of the 11 companies we cover.
Our top picks in the sector are:
- Genco Shipping (BUY, USD 21): 104% upside on last close
- Star Bulk (BUY, USD 14.2): 59% upside on last close
- Seanergy Maritime (BUY, USD 1.39): 96% upside on last close
A quick glance at fundamentals QTD indicates that net fleet growth for 2Q17E is approximately 0.6% q/q (vs our 1.2% forecast), versus an implied demand growth of 1.0% q/q (-1.1% forecast).
Please see our initiation reports for more information on each company we cover.
Disclaimer: The publisher currently owns shares in BULK-NS, EGLE-US, GNK-US, GOGL-NO, SHIP-US, SBLK-US