Shipping: Danaos
Very Bullish Greece-based Danaos Corporation owns and operates a fleet of approximately 65 containerships worldwide and offers seaborne transportation services like chartering its vessels to shipping companies. Together with its subsidiaries, in the words of fellow SA Author Zim Integrated, "Danaos' current fleet employment essentially guarantees that the company will keep generating record profits at least for the next couple of years." It's a value and growth win with stellar Factor Grades to match.
DAC Valuation
Until recently, cargo and shipping have been in high demand. Danaos’ record net income generation has been a key driver behind the stock’s appreciation. In recent times, lockdowns caused the marine industry some headaches – whether parked and unable to leave the ports due to a lack of inventory or merely unable to leave given shutdowns. Additionally, demand in China and a rate drop among vessels across vessel segments, particularly capesize, have led to softness in the cost of transporting materials and products. These events created volatility and the impact has been felt as the Baltic Dry Index fell to a five-month low. Investors should monitor the situation with caution, as there could be indications of softening on the horizon if the new Covid Variant has an impact on the economy. However, there is reason to believe most investor fears have been discounted into both the index and the stocks in the transport sector. The dry bulk industry has been strong all year, and some volatility is expected. Despite these potential headwinds, companies like DAC are still reaping the benefits of an optimistic outlook.
Source: Seeking Alpha Premium
With an overall A+ Valuation, Price to Book FWD and TTM is an A+, priced nearly 75% below the sector. In addition, 6.85 EV/EBITDA (TTM) and 9.16 EV/EBIT (TTM) are almost 50% below the sector. As you can see from the P/E figures below, DAC comes at a steal. In the words of fellow Seeking Alpha bull, Oakoff Investments, “(With) the rapid stock growth over the past year, I still recommend buying DAC at its current levels based on its intrinsic undervaluation and future growth prospects.”
Growth & Profitability
Despite its negative effect on most companies, global supply chain disruptions have positively impacted the shipping industry and Danaos. Even with the onset of the Omicron variant DAC’s services continue to be strong despite some of the declines seen in the Baltic Index. Friday, The Baltic Exchange posted its most significant weekly increase since mid-August, adding 1.8% to a one-month high of 3,171. Increasing demand and lack of available cargo vessels to satisfy the need will make DAC a strong stock pick. "We have achieved record EBITDA and net income. We have also expanded our charter catalogs, and now we have in excess of $2 billion of chartered backlog…the market dynamics are in our favor, as we'll continue to deliver the best results possible for our shareholders," John Coustas, CEO.
Source: Seeking Alpha Premium
DAC has demonstrated immense success with tremendous cash flow, a new dividend, and a large fleet of vessels with long-term leases. With a Q3 adjusted EBITDA increase of 79.6%, or $66.3 million, to $149.6 million from $83.3 million in the prior quarter, Danaos is bringing in the earnings.
Source: Seeking Alpha Premium
At Seeking Alpha, we emphasize looking for companies with strong fundamentals and attractive factor grades, which include earnings estimates and estimate revisions. Stocks that possess upward earnings revisions tend to have improving outlooks. Within the last 90 days, DAC has had three FY1 upward earnings revisions from analysts. This is a great sign of improving sentiment and a strong indication for potential growth and profits for DAC.
Source: Seeking Alpha Premium
In my opinion, the company has done very well in a difficult global environment and their income growth has shown the company’s success. As previously mentioned, the Baltic Dry Index plunged to a five-month low. In fact, Baltic Dry Futures dropped 44% from the Oct 7th high to their current level at 3171.00. For the same period, the stock only fell 8%. With that said, the stock declined 23% from its 52-week high. Notably, the declines in the index and the stock price could be an indicator market fears have been discounted. This could be a good entry point for the stock with the extreme decline of shipping rates baked into the stock price and analysts' revisions remaining to the upside. As Tim Huxley, CEO of Mandarin Shipping, said, “I’m afraid that this is actually going to end up translating into higher costs for consumers down the line and indeed shortages of some goods.” So long as the bottlenecks persist, consumer prices will likely continue to rise, and the demand for companies like DAC will profit.