In a note to clients Benjamin Nolan of Stifel upgraded the operator’s shares to “buy” from “hold” based on a bet that the stock is “too cheap to remain on the sidelines”.
“We believe the risk/reward profile at current levels is compelling given the shares trading 21% below NAV (net asset value) and a discount to the peer group,” he continued, adding:
“We believe the current discount is unwarranted and in fact, the lower degree of financial risk should justify a slight premium.
“Thus we believe the shares could close the value gap as rates rise in the second half of 2014, and our $12.00 target price is based on the shares trading close to our $11.59 per share NAV estimate.”
While July and August tend to be quiet months for the dry-bulk segment Nolan believes freight rates will rise significantly in the Fall thanks to additional iron ore mining capacity and a robust grain trade.
