North American Tankers: “F” pay rating (NYSE: NAT)

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Nordic American Tankers Limited (NYSE: NAT), a tanker company, acquires and charters double hull tankers in Bermuda and overseas. It operates a fleet of 21 Suezmax tankers (only), of which a new one has just been received.

NAT reported that it “has taken delivery of a new Suezmax tanker from Samsung Heavy Industries in South Korea” and that it “will begin a six-year contract with ASYAD Shipping Company of the Sultanate of Oman”. However, he noted that “a large portion of our fleet operates in the short-term spot market.”

During the outbreak of Russia’s “special military operation” which began on February 24 in Ukraine, spot tanker rates initially increased because the dispute involved a major oil producing/exporting country, Russia . NAT issued a press release (April 13) stating, “We are now seeing a clear recovery in the market…We expect the recovery to continue.”

The previous week, NAT had reported: “We informed you earlier that political uncertainty normally creates strong markets for our ships. There is now strong momentum in the market.

Despite NAT’s optimism and its bet on spot market rates, the spike in rates was short-lived.

tanker tariff table

Clarkson

One-time TCE revenue was reported (May 17) at -$5,800 for the Suezmax, 130, traveling from WAF to UKC. Year-to-date, the spot rate has averaged $8,000.

Oil prices

Poten & Partners

NAT’s everlasting optimism and willingness to bet on it is nothing new. For example, I previously noted in my article titled, Nordic American Tankers Limited sees rate crash as a short-term phenomenon after ordering 2 more tankers, which NAT issued a press release on November 6, 2020, in which it is in a “positive phase of development. There has recently been some lull in market activity, which we consider a short-term phenomenon. term”. And yet it reported losses for every quarter of 2021,

Earnings history

Looking for Alpha

Looking for Alpha provides “factor scores” for stocks, including a profitability score. Its rating for NAT is an “F.”

Profitability

Looking for Alpha

Note: The ratings are relative to the energy sector.

Looking for Alpha also issued the following warning:

Warning

Looking for Alpha

Nordic American Tankers Limited (NYSE:NAT) has shown warning signs that have historically led to dividend cuts. The company has a dividend safety score of F. Over the past 11 years, 64.4% of F-rated stocks have cut their dividend. »

Source: Alpha Research.

NAT stock price has lost 60% in the last 5 years. This compares very poorly to the 82% gain of the SP500TR.

Price table

Looking for Alpha

Oil market fundamentals are driving demand for crude oil transportation by tanker. These fundamentals have softened due to high oil prices.

The European Union looks set to weaken its sanctions package against Russia, Saudi Arabia has cut prices in a sign of weaker demand in China, and the stock market is falling broadly on worries about the extent of Federal Reserve rate hikes that may be needed to dampen inflation,” according to a recent report (May 9) on Seeking Alpha (“SA”) observed.

They also noted:

Oil tanker and energy transportation stocks deep in the red on Monday include Tsakos Energy Navigation (TNP) -12.7%, Nordic American Tankers (NAT) -10.9%, Frontline (FRO) -9.6%, Teekay Tankers (TNK) -9.2%, DHT Holdings (DHT) -8.3%, Scorpio Tankers (STNG) -8.3%, International Seaways (INSW) -7.8%.

Oil outlook

Wells Fargo recently updated its broader economic outlook, as reported on HER:

Based on trends in the economic data we’ve been tracking, we believe the economy is now beginning to cross a level of likelihood that makes a mild recession our base case scenario for late 2022 and early 2023, and we continue to shift directions in the equity sector. and allocations to more defensive positioning.”

It cuts consumer discretionary (XLY) from neutral to unfavorable, saying “higher rates and persistent inflation, combined with already weak consumer confidence, will reduce discretionary spending later this year and into 2023,” and “its new year-end GDP target for 2022 is now 1.5%, down from 2.2%, and -0.5% for 2023, down from 0.4%.”

In his month of May Monthly Oil Report (“MOR”), the International Energy Agency (“IEA”) has projected global oil demand to increase by 1.8 million barrels per day (mmbd) in 2022. This is a downward revision of more than 50% since the start of the year.

In his month of May Short term energy outlook (“STEO”), the U.S. Energy Information Administration (“EIA”) “assumes” U.S. GDP to grow 3.1% in 2022 and 2023. It forecasts global liquid fuel consumption to increase by 2.2% in 2022 and 1.9% in 2023.

consumption graph

EIA

consumption growth

EIA

OPEC forecasts that global oil demand will increase by 3.4 mmbd in 2022, as published in its Oil Market Monthly Report (“MOMR”). This is a downward revision of 0.3 mmbd from April.

world oil demand

OPEC

SPR direct debits

The United States has banned oil imports from Russia and the EU has proposed a ban to Europe that would be phased in for six months. Russia blocked almost a million barrels a day in April.

To ease the supply shortage, the IEA agreed to extract 60 million barrels of oil from storage, in addition to a release of 180 million barrels announced by the United States.

For the most part, SPRs are located in the 31 countries that hold them. This means that there is little need for tanker transport to consume these stocks.

SPR-shares

EIA

The US withdrawal rate of 180 million barrels over six months implies a withdrawal of one million barrels per day. Some traders doubted that rate could be achieved, but that was during the week ending May 6.

SPR direct debit

EIA

Analyst Notes

Jefferies Financial Group updated its rating for NAT to “Hold” in late April. However, Evercore downgraded the title to “underperforming” in early May.

analyst notes

market beat

The consensus of Wall Street analysts is a “Hold”, with a price target of $3.42. Besides, Looking for Alphas “Quant Rating” is a “Hold”.

NAT Ranking

market beat

However, the stock price has lagged this target for nearly a year.

share price v target

market beat

conclusion

NAT continues to bet on spot market tanker rates for the bulk of its fleet. However, I note that he has more wisely locked in a profitable long-term charter rate for his most recent new build.

Instead, tanker companies should diversify the timing and term structure of their tanker lease to manage risk exposure. I recently noted in my article, Decline in Euronav share pricethat Euronav (EURN) suffered from the same imprudence.

The outlook for oil demand in 2022 and 2023 has softened due to high oil prices, given the elasticity of demand for oil, which increases over time. In other words, consumers adjust their consumption lower and lower over time, the higher the oil prices.

And so betting on tanker spot rates is sheer madness when it comes to running a business. I disagree with analysts who rate the stock as a “Hold”.

About Aldrich Stanley

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