FRO - Frontline best-in-class but hurt by VLCC exposure Jefferies says in downgrade

2023-05-08 11:33:34 ET

Frontline ( NYSE: FRO ) -5.2% in Monday's trading as Jefferies downgraded the stock to Hold from Buy with a $17 price target, down from $22, citing the company's exposure to Very Large Crude Carriers, a vessel class expected to feel the brunt of OPEC+ production cuts.

"We are more cautious on VLCCs as OPEC's 1M bbl/day production cut is likely to keep pressure on the segment in the coming months," Jefferies analyst Omar Nokta wrote, noting VLCC rates averaged $55K/day during the first four months of 2023 - and peaked above $100K/day in March - but have since dropped to $30K/day.

Longer-haul tanker movements, logistically challenging trade patterns and a growing need to replenish oil stockpiles likely will keep mid-size crude and product tanker spot rates better supported, so Frontline's ( FRO ) 26 Suezmaxes and 18 LR2s will help offset weakness from its 22 VLCCs, Nokta said.

The analyst expects Frontline's ( FRO ) Q1 earnings will be quite strong and Q2 bookings-to-date could be even stronger, but Nokta sees risks to earnings for Q3 and Q4.

More on Frontline:

• See financial and valuation comparisons to sector peers
• SA analysis: Frontline: Spot Rates Pull Back
• Stock price return: Up 24% YTD, up 66% in the past 12 months

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