Star Bulk Carriers (SBLK) is a small cap stock currently flying under-the-radar. After years of extremely depressed pricing throughout its industry, business has finally started to improve. Analysts have recently revised their estimates significantly higher for Star Bulk, which sent the stock to a Zacks Rank #1 (Strong Buy).
And despite strong growth projections, shares recently traded at just 7x forward earnings. If the global economy remains stable and the industry continues to gain momentum, Star Bulk Carriers offers tremendous upside potential.
Industry Turnaround Gaining Momentum
Star Bulk Carriers is a shipping company that provides global transportation of dry bulk materials, including iron ore, coal and grain and minor bulks which include bauxite, fertilizers and steel products. The company currently owns and operates eleven Capesizes, four Post Panamaxes, six Kamsarmaxes, two Ultramaxes, and ten Supramaxes, and will accept delivery of another 34 secondhand vessels in the second half of 2014. In addition, the company has 13 Newcastlemax vessels, 10 Capesize vessels, and 14 Ultramax vessels on order for delivery by early 2016. It is incorporated in the Marshall Islands and has executive offices in Athens, Greece.
Following years of extremely depressed pricing, the drybulk shipping industry has finally started to improve. And this momentum is expected to pick up steam. Many industry experts expect the dry bulk shipping sector to experience an improving charter rate environment throughout the second half of 2014 and 2015 as demand continues to outpace supply in the space.
Despite a slowdown in China and sluggish global economy, demand for dry bulk shipping has been solid. And this demand is expected to remain strong barring a major slowdown in the global economy. Furthermore, after experiencing annual fleet growth of more than 10% from 2009-2012 (due to orders that were generally placed pre-Great Recession), dry bulk shipping fleet growth finally began to slow in 2013 and is expected to slow even further in 2014 and 2015. So this supply/demand imbalance is expected to drive rates higher. And considering Star Bulk's significant operating leverage and financial leverage, even moderate top-line growth should lead to stellar earnings growth.
Earnings Estimates Soaring
Star Bulk delivered better-than-expected second quarter results on August 20. Adjusted earnings per share came in at $0.06, well ahead of the Zacks Consensus Estimate of -$0.02. The company also beat on the top-line due to higher-than-expected spot rates.