In the wake of Russia’s war on Ukraine, oil prices jumped to a 14-year record. While they have pulled back from that peak, they still remain at decadal high levels. The obvious winners in this scenario are the world’s major oil producers, in the US and abroad, which are able to maintain profits on lower production – but they aren’t the only beneficiaries. Companies in the oil transport network have also come out ahead over the past year.
Shipping firms – companies operating the great tankers that carry crude oil and petroleum products across the world’s ocean routes – have seen some of the strongest wins among those second-tier gainers. These companies were under heavy pressure in the run-up to the Ukraine war, reeling from the collapse in shipping rates during the pandemic lockdown period. Russia’s attack on Ukraine, and the consequent cutback in global oil production and supplies, led to a rearrangement of shipping patterns, and the tanker firms have been reaping the gains.
In fact, a pair of them have earned the coveted ‘Perfect 10’ from the TipRanks Smart Score, a unique data tool that collects and collates a range of valuable inputs on every publicly traded stocks – and then rates it all according to 8 factors known to correlate with future overperformance. The Score is given on a simple scale of 1 to 10 – with the Perfect 10 indicating a stock that deserves a second look.
A quick look at some numbers will give the scale of the gains that helped earn these stocks their high ratings. Over the past month, the S&P 500 lost ~6.5%, while these two Perfect 10 tankers rose. Zooming out, the gap is way bigger with both these names generating returns of more than 200% over the past year. So, let’s take a look at these two winners, using a combination of the latest TipRanks data and commentaries from the analysts.
Scorpio Tanker, Inc. (STNG)
First on our list is Scorpio Tanker, a major player on the ocean highways, with a $5 billion market cap, a fleet of 113 modern tanker vessels, and nearly 14 years’ experience in the business. Scorpio is based in Monaco and operates its fleet on the charter system to move oil, refined products, and petrochemicals around the world. The company’s fleet leans heavily toward the MR class tankers, 50,000 DWT vessels, but Scorpio also has 39 of the 110,000-ton LR2 tankers – and 14 of the smaller, 38,000 ton Handymax ships that ply the less traveled lanes to smaller ports.
Scorpio released its 4Q22 and full year 2022 financial results last month, and the results show just how big its recent gains have been. In the fourth quarter the company showed a top line revenue figure of $493.7 million, far above 4Q21’s $147.9 million. At the bottom line, Scorpio’s quarterly income of $264.4 million was a strong turnaround from the $46 million loss reported in the prior year quarter. In a per-share basis, the diluted EPS rose from a 79-cent loss in 4Q21 to a $4.24 profit in 4Q22.
Looking at the full year, Scorpio’s net income for 2022 was $637.3 million, up 171% from the $234.4 million reported in 2021. The current EPS of $10.34 per diluted share represents an even stronger 141% increase from the 2021’s figure of $4.28.
Also of note, in another indication of just how strong recent revenues and income have been, the company declared its regular quarterly dividend with the earnings release, and announced a payment of 20 cents per common share. The new dividend payment is double that of the previous quarter, and marks the first dividend increase in four years.
On the Smart Score, three factors stand out as particularly strong. The stock has 100% positive sentiment from its news coverage recently, and the crowd wisdom is ‘very positive,’ showing increases in holdings of 15.6% over the last 30 days. And, of the hedge funds tracked by TipRanks, holdings in STNG were up more than 754K shares last quarter.
This stock caught the attention of investment bank JPMorgan, which initiated coverage in a recent note by analyst Sam Bland. Bland pointed out strong demand trends that should support Scorpio’s business going forward: “There is a long run trend of seaborne trade of oil products growing faster than crude. We expect this differential to continue, based on the geographic mix of demand and expected refinery capacity additions. We also expect sanctions on Russian exports could add around 5% to industry tonne-miles. Overall, we expect tonne-mile seaborne demand for oil products could be c.28% higher in 2025 than in 2018, despite the volume of crude production globally only increasing c.5-10% over that period.”
The shares might be up by 231% over the past year, but Bland thinks there’s more room to run. Looking ahead, the analyst rates these shares as Overweight (a Buy), and his $87 price target implies a one-year upside potential of 47%. (To watch Bland’s track record, click here.)
This stock has garnered 8 recent reviews from the Street’s analysts, with a 7 to 1 breakdown favoring Buy over Hold for a Strong Buy consensus rating. The shares are priced at $59.27 and their average price target of $75.88 suggests that the stock has a gain of 28% ahead of it this year. (See Scorpio’s stock forecast at TipRanks.)
Teekay Tankers (TNK)
The second stock we’ll look at, Teekay Tankers, is a Bermuda-based firm and the largest player in the mid-sized tanker niche. Teekay holds a fleet of 45 vessels, owned and operated in-house. The backbone of this fleet are 25 Suezmax-sized tankers, ranging in DWT from ~150,000 tons to 160,000 tons. The company also has 10 Aframax vessels in the ~110,000-ton class, 9 long rage 2 (LR2) ships of ~105,000 tons each, and 1 VLCC (very large crude carrier) of 319,000 tones. This fleet gives Teekay a high level of operational flexibility in moving oil and oil products, and the company can boast that ‘No matter where oil is produced or where it needs to go, we get it there safely and reliably.’
Once again, we are looking at a tanker company that saw its top and bottom line rise sharply in 2022. The company’s 4Q22 results bear that out; total revenue came to $367.3 million for the quarter, for a 129% year-over-year gain. This gave the firm a net income of $146.4 million, far above the 4Q21 net loss of $39.8 million. Teekay’s adjusted EPS came to $4.33 per share; it was a loss of 74 cents in the year-ago quarter.
For the full year 2022, Teekay had revenues totaling $1.06 billion, up 96% y/y. The year’s bottom line came to $217.1 million, or $6.39 per share. This was a world away from the $138.5 million loss recorded in 2021.
When we turn to Teekay’s Smart Score, we find again a stock with 3 factors standing out. There’s very positive crowd wisdom here, based on a 30% holding increase in the last month, along with an increase of 27,500 shares in hedge holdings last quarter. Also, the financial bloggers – who are normally a fickle bunch that rarely agree – are 100% bullish in their sentiment on TNK shares.
In his recent note for DNB Markets, 5-star analyst Jorgen Lian lays out Teekay’s potential course forward, and comes down to a bullish conclusion. Lian writes, “Despite a softer start to 2023, recent strength for mid-size tankers should bode well for its spot exposure, and we estimate an earnings yield of c20% for 2023, with the potential for meaningful shareholder returns as the company builds a large cash position. However, the stock is still trading at an attractive discount in our view, which should support upside to the current share price.”
Lian backs up these comments with a Buy rating, and his $52.70 target price indicates potential for 18% share appreciation over the next 12 months. (To watch Lian’s track record, click here.)
Over the past 3 months, 5 analysts have reviewed this stock, and their ratings break down to 4 Buys and 1 Hold – for a Strong Buy consensus rating. The shares are currently trading for $44.64, and their $53 average price target indicates an 18.5% upside potential from that level. (See Teekay’s stock forecast at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.