Analyst Upgrades Teekay Shares
An equity analyst at Wells Fargo Securities upgraded shares of Bermuda’s Teekay Tankers today [Feb.16] on a bet that the owner is primed for fleet expansion following a recent $60 million fundraiser.
Michael Webber branded the New York-stock with an “outperform” rating as he believes the company is about to enhance its earnings power by buying tankers from parent Teekay Corp in a transaction that he describes as “transformative”.
“We think a large-scale dropdown (potentially 16-23% accretive under our scenarios) would drive additional support for TNK’s dividend, and serve as a catalyst for the stock,” he wrote in a note to clients.
While Mr. Webber is aware of turmoil in the tanker market, which is plagued by lacklustre freight rates, he views the possibility of aggressive fleet expansion as a positive for TNK as a deal would likely be sealed at the bottom of the market cycle when asset prices are at or near rock bottom.
“From a more intermediate-term perspective, while the tanker market remains oversupplied, the orderbook continues to dwindle (now at 17% of the global fleet, down from a peak of 49% in 2008), potentially reaching a 15-year low by the end of 2012 (8%), which we believe could help eventually (Q4/2013) anchor an inflection point in the tanker market,” he added.
The analyst’s dividend estimate is based on three possible scenarios. The first assumes that Teekay would drop-down its entire 17-vessel tanker fleet to TNK. The second and third models figure in the sale of 72% and 49% of the parent’s stable, respectively.
Shares of company, which is led by chief executive Bruce Chan and headquartered in Bermuda where it oversees a fleet of 16 crude carriers, soared 6.37% to $4.34 in the hour following the opening bell on the New York Stock Exchange this morning.
Mr. Webber’s predictions were made on the heels of a follow-on equity offering that left TNK with liquidity of around $350 million and a decision to cut its dividend in a move aimed at preserving cash.
