Teekay LNG Partners LP
) has gained 23.3% since December 2011 thanks in large part to the
growing global demand for liquefied natural gas (LNG) as a
substitute for coal and oil. Other factors for the advance include
a decrease in the construction costs for LNG vessels and a
significant increase in distributable cash flow through successful
acquisitions. Furthermore, this LNG vessels operator currently
enjoys an attractive dividend yield of 6.8%.
After its strong performance in the first quarter of 2012, earnings
estimates have been moving higher, making Teekay LNG a Zacks #2
Rank (Buy) on July 12, 2012. The previous quarter marked the
company's 11th consecutive profitable quarter despite functioning
in a highly volatile global shipping industry.
A Solid Beginning for 2012
On May 17, Teekay LNG reported first-quarter 2012 earnings of 55
cents per share, beating the Zacks Consensus Estimate by 3.8% and
the year-ago earnings by 22.2%. Total Voyage revenue of $99.2
million improved 6.4% year over year. Distributable cash flow of
$50.8 million reflects an enormous improvement of 29.9% over the
year-ago level of $39.1 million.
First-quarter gross margin was 79%, reflecting an improvement of
1.7% over the prior-year quarter. Operating margin was 47%, up
0.5%. Although net margin declined 1.9%, it stood at a healthy
Estimate Revisions Growing
The Zacks Consensus Estimate for 2012 moved up 5.5% to $2.12 over
the last 60 days, while it increased 6.4% to $2.33 for 2013. The
current Zacks Consensus Estimate for 2012 indicates year-over-year
improvement of 15.2%, while the current estimate for 2013 implies
growth of 10.1%.
Lucrative Dividend Yield
Teekay LNG's current dividend yield of 6.8% is 4.6% higher than its
trailing 12-months average dividend yield. In contrast, the average
dividend yield of the industry is a meager 1%. The dividend rate
has increased by 27.4% annually over the last 5 years, resulting in
a payout ratio of a whopping 203.0%.
Valuation Looks Compelling
Valuation of Teekay LNG looks reasonable. The current forward P/E
of 18.67x implies a premium of 59.2% from the peer group average of
11.73x. This valuation premium is warranted as the company has
maintained profitability when the shipping industry is suffering
from an oversupply of vessels. Meanwhile, the stock looks quite
attractive given a trailing 12-month ROE of 11%, which is 175%
higher than the peer group average of 4%.
Chart Shows Growth Potential
The stock has been trading above its 50 and 200-days moving
averages since January 2012. Average volume also remains good at
216.5K. This uptrend should encourage investors as the stock is
likely to be on the rise, riding on the increasing global demand
for natural gas. LNG tanker operators like Teekay LNG will become
major beneficiaries of this positive development.
In a Nutshell
Although the global marine transportation sector is still not out
of the woods, the LNG tanker segment is an exception due to the
growing adoption of natural gas as fuel for power generation and
several manufacturing activities. This, in turn, has resulted in
high demand for LNG tankers, which are specifically designed to
transport liquefied natural gas. A modernized LNG carrier fleet,
fabulous dividend yield and growing market opportunity make Teekay
LNG a solid pick for growth and income investors.
Headquartered in Hamilton, Bermuda, Teekay LNG Partners LP was
founded in 2004, and is currently the third largest owner and
operator of LNG vessels, providing LNG, LPG and crude oil marine
transportation services. The company manages 27 LNG carriers, 5
LPG/Multi carriers and 11 conventional tankers.
TEEKAY LNG PTNR (TGP): Free Stock Analysis
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