We reiterate our long-term Neutral recommendation on
). We believe that DryShips is currently fairly valued as the
stock price plummeted 43.2% in the last year.
Why Kept at Neutral?
DryShips declared disappointing financial results for the
fourth quarter of 2012, missing the Zacks Consensus Estimates.
Solid performance by the company's majority owned
Ocean Rig UDW Inc.
) deepwater oil drilling unit was more than offset by the tepid
results of its drybulk shipping cargo division and oil tanker
division. We believe that the situation will not improve before
A major problem for DryShips is that a large part of its
shipping contracts are currently under the volatile spot rate
market. Management declared that two-thirds of the company's
fleet are exposed to the spot market in 2013. Such a huge
exposure on the spot market will definitely generate severe
top-line fluctuations going forward. The company may not be able
to employ its vessels upon the termination of their existing
charters at their current charter hire rates. DryShips currently
has a Zacks Rank #4 (Sell).
Risk/Reward Virtually Balanced
Capesize vessels, which are mainly used for drybulk goods,
faced the major brunt of this competition. In the spot market,
capesize vessel rates fell below the operating costs. In the
reported quarter, the realized average daily time charter
equivalent rate of DryShips in the drybulk segment was a mere
$10,547, a steep reduction of nearly 58.3% year over year. The
Oil Tanker segment also follows suite as the realized average
daily time charter equivalent rate was down by 0.2% to
Nevertheless, the offshore drilling division continues to
flourish buoyed by rising expenditures from oil companies and
success in ultra deep water oil field discoveries. The deepwater
oil drilling segment is currently witnessing shortages of rigs
worldwide, as the energy companies have raised the level of
production. At the end of 2012, Ocean Rig had approximately
$5.1 billion of order backlog over the next three years.
Furthermore, an expected growth of commodity demand in the
emerging markets, especially in China and India may help the
drybulk shipping market to recover in 2013.
Other Stocks to Consider
Other stocks to consider in the shipping industry are
Tsakos Energy Navigation Ltd.
). Both the companies handily beat the Zacks Consensus Estimates
in the most recent quarter. These stocks currently have a Zacks
Rank #2 (Buy).
DRYSHIPS INC (DRYS): Free Stock Analysis
KIRBY CORP (KEX): Free Stock Analysis Report
OCEAN RIG UDW (ORIG): Free Stock Analysis
TSAKOS EGY NAVG (TNP): Free Stock Analysis
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