We downgrade our recommendation on
) to Underperform, primarily due to current volatile conditions of
the shipping industry. The drybulk shipping and tanker industry are
facing severe challenges as the vessel rate collapsed even below
the rate during the recession. We believe the sole reason for this
dismal condition is the sheer increase of vessels under operation
that resulted in intense price competition.
DryShips reported mixed financial results for the first quarter
of 2012. Though top line managed to beat the Zacks Consensus
Estimate, net income fell significantly below it due to downtime
and relocation of oil rigs at the company's drilling segment. We
believe macro-economic uncertainty of the European regions,
slowdown of the Chinese industrial sector, and fluctuations in oil
prices are major near-term concerns. Moreover, the company is
highly leveraged. Diversification into the offshore oil drilling
business through its 65.2% owned subsidiary
Ocean Rig UDW Inc.
) will no longer be able to offset losses in the drybulk shipping
segment. We do not find any immediate growth catalyst for
We believe continuation of the extreme low spot rate may bring
down fixed time charter rate. This will severely impact the overall
finances of DryShips. It was evident from the previous quarter's
Time charter equivalent TCE, which was $22,257, down 19.7% year
over year. Management declared that just 49% of its operating days
in the Drybulk segment in 2012 are at present under fixed rate
charters at an average rate of about $31,249 per day. This implies,
DryShips still has huge spot-exposure.
DRYSHIPS INC (DRYS): Free Stock Analysis Report
OCEAN RIG UDW (ORIG): Free Stock Analysis
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