Why the Downgrade?
DryShips witnessed sharp downward estimate revisions following lower-than-expected first-quarter 2014 results reported on May 22. The company posted total revenue of $457.5 million that lagged the Zacks Consensus Estimate of $489 million, while delivered loss per share of 4 cents, against the Zacks Consensus Estimate of a profit of 2 cents.
As a result, we have been witnessing a downtrend in the Zacks Consensus Estimate. For the current year, the Zacks Consensus Estimate has plunged 35% to 13 cents per share whereas for the current quarter, the same declined 25% to 3 cents in the last 7 days. Notably, the company has missed the Zacks Consensus Estimate in all of the last four quarters, with a substantial average miss of 137.5%.
Despite an improving U.S. macroeconomic scenario, the drybulk shipping industry is still not out of the woods. This is solely attributable to non-economical decisions taken by the shipping companies in 2008, just before the onset of recession worldwide.
The increase in the number of vessels under operation resulted in intense price competition. Due to the lack of near-term foresight, most of the vessel operators had ordered large number of new build ships in several docks. This abundance of vessels resulted in severe cut-throat price competition.
The main problem for DryShips is that a major portion of its shipping contracts are currently under volatile spot rate market. Such a wide exposure will definitely result in severe top-line fluctuations, going forward.
Other Stocks to Consider
While we choose to avoid DryShips at the moment, better-ranked stocks worth considering in the shipping industry include Global Ship Lease, Inc. ( GSL ), Kirby Corp. ( KEX ) and Nordic American Tankers Ltd. ( NAT ). All the three stocks carry a Zacks Rank #2 (Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.