ESEA - Euroseas (ESEA) - Stock Price Weakness Doesnt Match Slight Miss
A Slight Miss. Adjusted 3Q2021 EBITDA of $10.6 million included dry dock expenses of $2.7 million. After adding back dry dock expenses, our adjusted 3Q2021 EBITDA of $13.3 million was slightly below expectations of $13.8 million due to higher opex costs.Adjusting 2021 EBITDA estimate to incorporate 3Q2021 results. Fine tuning our 2021 EBITDA estimate to $53.9 million based on TCE rates of $18.6k/day to reflect 3Q2021 operating results and slightly higher opex. As discussed in our most recent note, forward cover is full and the Corfu is repositioning toward China on a short charter prior to dry docking.Updating 2022 EBITDA estimate and forward cover. Due to higher costs and the dry docking schedule, we are moving our 2022 EBITDA estimate to $100.0 million based on TCE rates of $26.7k/day. Forward cover is high and we estimate that 73% of 2022 available days are booked at an average TCE rate of $23.0k/day.Debt financing on acquisitions increases financial leverage, but debt load matches forward cover. Financial leverage is moving up due to acquisitions that are mainly financed with debt. Excluding unamortized interest costs, net debt dropped to $49.5 million from $51.7 million in 2Q2021, but the closing of two acquisitions in 4Q2021 will increase total debt to $110.4 million and net debt to $85.3 million in 4Q2021. While higher, the debt load is manageable at LTM EBITDA multiples of 2.0x total debt and 1.6x net debt. Moreover, 4Q2022 net debt should drop to $17.5 million even though new build capex will be in the $19 million range.Maintain Outperform rating and price target of $45.00/share. We were surprised by the sharp 19% drop yesterday after the slight miss on 3Q2021 operating results and believe that the risk/reward profile is very attractive even though the stock is up 393% this year. Our container market outlook stays positive and numerous longer term charters at higher rates create forward 2022 cash flow visibility. Recent acquisitions derisked with time charters, improved forward visibility and the current valuation support a positive outlook. Favorable container market fundamentals, new time charters and two acquisitions are positives, and shareholder-friendly moves are possible over the next quarter. Read More >>