This shipping company’s earnings estimates have risen by $0.64 in the past 90 days. It’s industry is currently ranked by Zacks as 73 out of more than 250 industries.
Dorian LPG (LPG)
from Canaccord Genuity Research
We are initiating coverage of Dorian LPG (LPG) with a BUY rating and $24 price target. The company is in the process of a newbuild program that will expand its fleet to 23 LPG carriers by 2016, including 18 ecoclass Very Large Gas Carriers (VLGC).
The strong growth in unconventional shale oil and gas production in the U.S. has created a surplus of LPG cargoes, which are earmarked for demand centers in Asia. The new trade patterns emerging from this trend are favorable to VLGC carriers, positioning the company well to capitalize on these new trade routes.
Going forward, demand growth is expected to remain strong as export capacity in the U.S. increases, new PDH plants in China are built, and the Panama Canal expansion allows more economical transport of U.S. Gulf exports to the Far East.
While VLGC spot rates are currently fantastic, we look for rates to come back down as the cycle develops and supply adjusts, which we see as a 2016 event. In order to limit its exposure, we expect management to fix more of its fleet as vessels are delivered and supply/demand becomes more balanced.
Dividend payout could be a 2015/2016 event: As its newbuild program is delivered and cash flow generation grows, we expect the company to institute a modest dividend as a way of returning value to shareholders.
Our forward, historically normalized NAV is $21.60 per share (F2018E). As such, we believe there is further upside remaining in the stock. Our $24 price target is based on a 1.1x multiple to our forward, normalized NAV.
Noah Parquette, Canaccord Genuity Research, www.canaccordgenuity.com, 617-371-3711, October 2, 2014