NAT - Insight Into Nordic American Tankers Q2-2023 Upcoming Earnings
2023-07-31 17:53:46 ET
Summary
- Nordic American Tankers Limited reported record financial performance for Q1-2023 and its stock price has gained 94% over the last year.
- The Ukrainian War has caused a ban on Russian oil exports, increasing the demand for oil tankers.
- Q2-2023 revenues will be lower in my view, but the company's strong financial performance is expected to continue.
- The company reports Q2-2023 results on August 25th.
- I rate the stock as a hold for now and recommend one wait for a pullback in stock price.
Nordic American Tankers Limited ( NAT ) reported record financial performance for Q1-2023 and its stock price has gained 94% over the last year. The company operates 19 Suezmax tankers, each with a capacity of one million barrels of oil. The Ukrainian War has caused a ban on Russian oil exports and the transport of oil overseas has been disrupted. These factors and other items lingering from the pandemic have increased the demand for oil tankers. According to Nordic’s Q1-2023 report , the company is still experiencing this high demand. The overall forecast for oil tanker demand remains high going into 2024.
Although the stock price has been up over the last year and the company has consistently reported strong results, I think the company’s stock price is currently overvalued and Q2-2023 revenues are expected to be lower. The company’s financial performance experiences seasonality, so the lower revenue numbers are not the main concern. The stock is currently trading near its 52-week high and it has met resistance at $4.25 per share for the last five years. I will discuss further the valuation below. For now, it is safe to say that the stock is overvalued and I rate is as a hold. After the next earnings statement and dividend payout, the stock price will drop slightly. At that time, one may consider a more attractive entry point. It is possible that newly emerging bullish market conditions may bring the price beyond its 52-week high, but the thesis is high risk.
Q1-2023 Financial Performance and Q2-2023 Outlook
Nordic American Tankers breaks down its performance based on average price per day per ship. The company reported a record high of $60K per ship per day during Q1. The number represents an all-time high for the company and indicates high demand in the oil tanker sector. The company reported a net income of $46.9 million. Although revenues dropped from Q4-2022 to Q1-2023, gross profit and net income were historically high for the company.
Market estimates for Q2-2023 revenues are $65.17 million and EPS estimate is $0.14. The company has forecasted a seasonal slowdown for Q2-2023. The slowdown still represents a high earnings season for the company at current demand rates. The company credits a global shortage in suezmax tankers and disruptions caused by the Ukrainian War as main drivers in its improved performance. The average booking price during Q2 has been $42,111 per day per ship, thus a decrease from Q1-2023. There may be a slight surprise in earnings, but it will likely show a decrease from Q1-2023.
| millions |
| Q1-2023 |
| Q4-2022 |
| Q3-2022 |
| Q2-2022 |
| Q1-2022 |
| Revenue |
| 87.1 |
| 241.6 |
| 47.4 |
| 108.7 |
| 15.5 |
| Cost of Revenue |
| 14.0 |
| 185.7 |
| 14.8 |
| 90.6 |
| 16.7 |
| Gross Profit |
| 73.1 |
| 55.9 |
| 32.6 |
| 18.0 |
| (1.1) |
| Net Income |
| 46.9 |
| 36.0 |
| 10.0 |
| (4.0) |
| (27.0) |
| Cash & ST Investments |
| 56.6 |
| 59.6 |
| 37.2 |
| 35.6 |
| 37.1 |
| Current Assets |
| 138.7 |
| 142.7 |
| 143.9 |
| 135.6 |
| 110.4 |
| Total Assets |
| 863.0 |
| 879.9 |
| 881.9 |
| 899.2 |
| 829.1 |
| Unlevered Free Cash Flow |
| 36.8 |
| 53.2 |
| 3.0 |
| (72.3) |
| (13.7) |
| Current Liabilities |
| 144.9 |
| 72.4 |
| 80.2 |
| 88.8 |
| 72.5 |
| Total Liabilities |
| 307.0 |
| 339.9 |
| 368.1 |
| 403.3 |
| 337.3 |
| Current Debt |
| 123.8 |
| Long-Term Debt |
| 284.9 |
| 307.3 |
| 332.7 |
| 356.3 |
| 302.3 |
| Book Value per Share |
| $2.66 |
| $2.59 |
| $2.46 |
| $2.45 |
| $2.49 |
| Street Target Median Price |
| $5.00 |
| Current |
| NTM Total EV / Revenue |
| 4.09x |
| 3.61x |
| 3.64x |
| 2.97x |
| 3.54x |
| 4.28x |
Financial Data from Seeking Alpha and Valuations from www.TIKR.com
Over the last five earnings reports, the company has shown a marked improvement in gross profit, net income, and free cash flow. One may see the seasonality of the company’s earnings represented by the constant flux in revenue numbers. The company used its cash from operations to pay down debt and to issue a $0.15 per share dividend.
As it stands, the company’s balance sheet is in excellent condition. Its assets far outweigh its liabilities. The company’s debt is proportionately low and is partly due to the financing of new vessels. The company’s growing free cash flow ensures operations during low seasons. Since demand for oil tankers is expected to stay elevated through 2024, one may assume the company’s strong financial performance will continue.
Stock Price Gains 94% Over 12 months
12-month price performance chart from www.StockCharts.com
The company’s stock price has seen excellent performance over the last twelve months. It is up 94.22% over 12-mo, 54.66% over 6-mo, and 21.78% over the last 1-mo. It currently trades above its 20/50/200 moving-day averages. The stock price is sitting at its 52-week high and has been tempting this higher channel for five years. On Balance Volume and Accumulation / Distribution remain elevated. Although the performance has incredible metrics, it is now entering uncertain territory.
The stock has 46% institutional ownership and 97% of its outstanding shares are currently float. The stock may be undergoing a short squeeze leading up to earnings, which will be announced August 25 th . It is possible that new bullish market conditions will bring the price higher. The median market consensus on the price is $5.00 per share. These conditions indicate a high risk in a short-term investment. The price may rise and then fall dramatically.
Valuation and Investment Strategy
The company’s NTM Total EV / Revenue is currently 4.09x. The stock price seems overvalued at the moment. Its book price per share is $2.66. It is possible for an overvalued stock to rise further, but buyer's remorse may set it and the stock price declines. If there is a short squeeze being played on the stock’s earnings cycle, then the price will also decline afterward.
The short-term risk seems high. One could play along with the short-term conditions through a call and put strategy. I think A better approach would be to wait until dividend payment and look for an entry at a lower price point. In this way one may be ready for future plays over 2023. Resistance past $4.25 per share should be considered before any strategy is considered.
The company’s financial performance and cash-rich environment allow for a lower overall risk. Nordic American Tankers should continue its strong performance. If and when the Ukrainian War ends, then oil tanker conditions will change. How it will change is not clear yet and there is no plausible end in sight for the war.
Conclusion
Nordic American Tankers is experiencing strong financial performance due to the larger market conditions in the oil tanker sector. These conditions are being caused by the Ukrainian War and the EU ban on Russian oil exports. The company also cites a shortage globally in suezmax tankers. The company’s stock price has gained over 94% in the last twelve months. Investors should wait until the stock price drops after the dividend before opening new long-term positions or refilling current ones. For now, I rate the stock as a hold and recommend that you watch the company’s performance.
For further details see:
Insight Into Nordic American Tankers Q2-2023 Upcoming Earnings