Frontline shares plunged 8.6% on Wednesday as the oil tanker company lagged analysts’ earnings expectations for the third quarter and suspended its dividend plan.
The company disclosed that its Board of Directors has exercised its discretion and decided not to pay the third-quarter dividend due to the “uncertain and evolving nature of near-term expectations.”
Meanwhile, Frontline’s (FRO) third-quarter revenue grew 32% year-over-year to $247.4 million and exceeded analysts’ estimates of $176.1 million. The company flipped to an adjusted EPS of $0.29 in 3Q20 from a loss per share of $0.06 in 3Q19. However, analysts were expecting an adjusted EPS of $0.37.
Commenting on the results, Frontline’s interim CEO Lars H. Barstad stated, “Frontline’s strong results in the third quarter of 2020 came amid an extremely volatile quarter for the industry. Oil demand slowly began to recover in the third quarter of 2020, and the record levels of global oil inventories have been gradually declining.”
“While demand remains significantly lower than prior to the pandemic, it is forecast to rebound in 2021. Demand growth coupled with the potential for OPEC+ production cuts to be reversed would quickly boost tanker demand,” added Barstad. (See FRO stock analysis on TipRanks)
Last month, BTIG analyst Gregory Lewis downgraded Frontline to Hold from Buy. In a note to investors, the analyst explained that with continued OPEC production cuts, falling asset prices and with estimates already reflecting a “strong” fiscal 4Q and 1Q, the crude oil tanker stock looks fairly valued at current levels, based on cash flows.
Frontline shares have declined 47.5% year-to-date. Looking ahead, the average price target of $7.65 indicates upside potential of 13.2% from current levels. The Street’s Hold analyst consensus is based on 2 Buys, 3 Holds and 2 Sells.
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