Any risk-tolerant investor will be hard pressed to find a penny stock that better embodies the description than Greek oil tanker operator Top Ships (TOPS). Shares are going for $0.11 apiece, after a multi-year ride to the bottom. In 2020 alone, the stock is down by 86% so far. Adding insult to injury, the only analyst on Wall Street keeping a close eye on the vessel operator recently downgraded his rating.

Maxim analyst Tate Sullivan dropped his rating from Buy to Hold and also removed his price target, citing “potential for delays at shipyards delivering five new ships to TOPS in 2021” as the reason for the downbeat assessment. (To watch Sullivan’s track record, click here)

The analyst further said, “While COVID-19 may continue to impact global shipping and shipyard activity in 2021, we note shipyards periodically have newbuild delivery delays even during more predictable operating environments. In addition to potential delays in 2021 generating revenue from five new ships, we also factor in the risk that some of TOPS' customers may not exercise options on contracts with ‘end of firm period’ contracts in 2021.”

There are four ships in the company’s fleet that fall into this category. According to Tate, this could result in “lower daily rates and/or downtime between contracts if volatility in global shipping activity continues.”

Therefore, Sullivan trimmed his 2021 revenue estimate from $68.7 million to $66.9 million, and slashed his previous 2021 EBITDA estimate from $31.4 million to $30.4 million.

In order to raise additional cash, since the turn of the year, Top Ships has completed a series of equity offerings, with net proceeds coming in at about $113.7 million. Sullivan estimates that in the first half of 2020, $41.4 million went toward reducing the debt load, but he still expects debt to increase to $374.6 million by the end of 2021 (compared to the previous 2021 estimate of $348.3 million).

In addition, Sullivan believes TOPS will preserve cash before paying for newbuilds, although the analyst expects TOPS to fund newbuild construction with proceeds from the equity offerings.

Looking ahead, a revision of Sullivan’s outlook for the vessel operator is dependent upon the health of the global shipping industry.

“We will continue to review our estimates as a meaningful increase in shipping activity in 2021 may lead customers for four of TOPS' ships to exercise options at higher daily contract rates,” the analyst concluded. (See TOPS stock-analysis on TipRanks)

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