DryShips Stock Forecast

DryShips Stock Forecast: Moving cargo is big business. Billions of tons of materials travel the world’s oceans every year. From raw materials to finished products, chances are good that a shipping company has handled a portion of the transport from point of origin to point of sale.

However, despite the critical role shipping companies play in global trade, investors tend to be shy about buying these stocks. The shipping industry is particularly sensitive to economic ups and downs, and shareholders must be prepared for a roller coaster ride if they choose to invest.

DryShips has had a particularly lively history, culminating in a dramatic August 19th announcement that caused share prices to increase by 35 percent overnight.

What Does DryShips Do?

George Economou founded DryShips [NASDAQ: DRYS] in 2004, just in time to take advantage of the shipping boom from 2005 – 2008. During that period, the company’s fleet grew to 38 vessels, and it began to explore the possibilities offered by the ultra-deepwater drilling industry through the acquisition of Ocean Rig ASA.

Of course, DryShips [NASDAQ: DRYS] wasn’t immune to the 2009 economic crisis, and the company struggled through the period of 2009 – 2014. Rather than focusing investment on the expansion of its cargo transportation capacity, DryShips directed its attention to Ocean Rig ASA. By expanding from two drilling units to nine, Ocean Rig ASA became one of the largest ultra-deepwater drilling contractors in the world.

That isn’t to say that the company ignored its shipping division altogether. After adding tankers to its fleet, there was a period in which DryShips owned a total of 56 vessels.

However, the end of the global financial crisis didn’t mark an end to DryShips’ financial strain. From 2015 to 2016, there was an unexpected downturn in the drybulk and offshore markets, and Economou had to bail out the company by purchasing 30 ships through affiliated businesses.

By the end of 2016, Economou had also purchased a massive amount of DryShips’ debt, leaving the company in a stronger financial position. At that point, DryShips’ assets included 13 bulk carriers and six offshore support vessels.

Economou’s substantial investments supported a turnaround for DryShips, and things started to look up. By the end of 2017, the company owned 36 vessels. Through a variety of investments and stock buybacks, Economou also controlled 69.5 percent of DryShips’ common stock.

Today, the DryShips [NASDAQ: DRYS] fleet consists of 32 ships, and Economou remains the majority shareholder as owner of 83.35 percent of common stock.

DryShips’ Tenuous Relationship with the Stock Market

DryShips Inc. was the first dry bulk company to go public in the United States. It completed an IPO on the Nasdaq in January 2005 and has experienced a fair share of highs and lows in the fifteen years since.

In June 2019, Founder and Chief Executive Officer George Economou decided he had enough, and he made an offer to buy back all outstanding shares. His initial offer was $4 per share, or $57.9 million. This equated to a total equity value of $347.5 million, which was 51 percent below the adjusted equity value of approximately $710 million – a bit too low for the Board to accept.

After some negotiation, Economou offered $5.25 per share, or $75.9 million. This equates to a total equity value of $456.2 million, which is 36 percent below the adjusted equity value. This offer was accepted by the Board on August 19th. Overnight, stock prices soared from $3.83 to just under the $5.25 purchase price. The transaction is expected to be completed in the fourth quarter of 2019.

Investing in the Shipping Industry

Economou’s decision to return DryShips [NASDAQ: DRYS] to privately-held status isn’t without precedent. Teekay Offshore is considering an offer to leave the public arena, as well.

There shipping industry is facing increasing pressure as a result of on-going trade wars between major economic players, and many have determined that the publicly-traded shares don’t reflect the company’s true value.

With that said, there are investors who are committed to the shipping industry, as it plays such an integral role in the global economy. If you are considering the purchase of shipping industry stock, it’s important to note that “shipping” means more than just ocean transport.

Companies in the shipping industry manage transportation by water, air, rail, and truck. Some specialize in the actual transport of cargo, while others focus on logistics. The most successful offer both services, handling the logistics as well as the actual transport of materials.

Within the marine shipping category, there are four primary areas of specialization:

• Dry Bulk Carriers – Handles unpackaged dry commodities such as grain, metal, coal, and cement
• Oil and Refined Products Tankers – Moves crude oil, gasoline, and similar from production centers to points of sale
• Liquid Gas and Chemical Ships – Specially designed transports for liquified natural gas (LNG), liquefied petroleum gas (LPG), and petrochemicals like ethylene
• Container Ships – Cargo is non-bulk, such as finished and packaged manufactured goods

Alternatives to DryShips [NASDAQ: DRYS] include the following:

• Costamare – Specializes in container ships
• Diana Shipping – Fleet of dry bulk carriers
• Eagle Bulk Shipping – Fleet of dry bulk carriers
• Frontline – Specializes in oil tankers
• Gaslog – Specializes in liquid natural gas (LNG) carriers
• Nordic American Tankers – Specializes in oil tankers
• Seaspan – Fleet of container ships
• Star Bulk Carriers – Fleet of dry bulk carriers

 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.