DryShips (DRYS, Financial) as the company displayed significant improvement in its core fundamentals such as revenue and earnings during the second quarter of 2014. It was driven by a strong performance in Drybulk Carrier, Oil Tanker and Offshore Drilling. This noteworthy progress will certainly boost shareholders' confidence going forward along with various turnaround initiatives that should help enhance its growth. The stock appreciated approximately 6.67% to $2.88 aftermath.
DryShips, for the second quarter of 2014, reported revenue of $497.3 million an upswing of 48% from $336.14 million in the same quarter a year earlier, beating the analysts’ estimates of $491.55 million for the quarter. Also, its net loss narrowed down to $5.6 million as compared to $18.2 million in the same period last year that beat the consensus forecasts of $0.5 loss per share for the quarter.
What can be expected in the future?
Looking forward, the shipping company looks strong to carry forward the improved momentum in it is observing in the various segments such as Offshore Drilling, Drybulk Carrier an Oil Tanker as it has renewed most of its multi-year contracts. Its subsidiary company Ocean Rig has recently acquired a six-year contracts from Total (TOT, Financial) for offshore drilling operations in Angola. The company has additionally entered into a contract with one of its semi-submersibles, the Eirik Raude for offshore drilling in the Falkland Islands.
In addition, DryShips is also experiencing solid momentum for its dry bulk Carrier and oil tanker segments. The company is seeing positive developments in the Drybulk and tanker spot markets that should enhance its bottom line performance in the second half of the year. Besides, the company remains on track with its strategic initiative like operating its vessels in both dry and wet in the spot markets that should drive substantial improvement in these markets henceforth.
DryShips has approximately 6,651 spot fleet capacity days in 2014 that are estimated to accelerate about 15,821 spot fleet capacity days in 2015 that should certainly enhance its EBITDA going forward.
Gaining traction
Moreover, its Panamax fleet now represents approximately 60% of the total spot days. It expects its average charter rates to increase about 20,000 per day; that should generate accumulated EBITDA of $133 million to $316 million going forward. Also, the company is seeing a relatively good demand for coal cargos and iron ore volume in Brazil that should strengthen its position in the spot market going forward and drive its Panamax performance.
DryShips on the other side is almost done with the construction of its four "ICE-CLASS Panamax" bulkers construction at Jiangsu Rongsheng Heavy Industries in China along with total remaining yard installments of 124.4 million, which should benefit the company as the delivery dates for the contractual vessels are expected to fall soon in the current quarter.
DryShips is witnessing continued momentum in the Chinese market driven by a well-adjusted situation of demand and supply along with slowing trend in new building deliveries. DryShips is experiencing a higher seaborne transportation demand due to various factors such as increased strength in the iron ore, advanced demand in steel production and the perpetuation of low cost iron ore supply in the market that displays quite an expensive and lower quality domestic Chinese production should act as an tailwind for DryShips in the future.
In fact, the company posted impressive number with capsize earnings growing approximately 90% during the second-quarter in China.
Meanwhile, the company continues to observe a healthy momentum in the oil tanker market as the large tankers such as Suezmax and Aframax are recording considerable gains with their weights increased to 41% and 21% year-on-year basis. Furthermore, the company expects the new stretch such as spillage, cancellations and increased spurting activity in the Panamax segment to cause imbalance in the demand-supply paradigm that should lead to healthier demand in the freight surroundings.
For example, its average Suezmax spot waves rose from $20,000 per day to about $48,000 per day and average spot rates jumped from $18,000 per day to more than $49,000 per day during June-July period.
The company is witnessing increased momentum in the order books for both Suezmax and Aframax. Its Suezmax order book currently stands at more than 8% of the fleet, while its Aframax floats at 13% along with majority of the orders scheduled to hit the water in 2015 and 2016 should enhance its bottom line performance in the future.
Conclusion
DryShips certainly is in a good position that looks very promising in the future. It has forward P/E multiple of 8.16 that indicates that the stock is relatively cheap but has a lot of room to grow in the coming years. Moreover, the analysts have estimated CAGR of 10.00%, greater than average industry CAGR of 6.73% for the next five years, highlights tremendous prospects for the company going forward. Also, its bottom line is expected to go on a positive note hence forth from $0.1 EPS in 2014 to $0.37 earnings per share in 2015 should excite shareholders and investors.
