2024-01-04 13:30:00 ET
Summary
- The outlook for liquefied petroleum gas shippers looks bright for 2024 in light of rising demand from Asia, which accounts for 60% of seaborne trade.
- Asian LP gas imports are expected to rise by almost 10% this year, driven by consumption from China’s petrochemical industry and India’s infrastructure development initiatives.
- In addition, global LP gas shipping rates could rise amid bottlenecks and chokepoints from a geopolitical crisis hindering routes in the Red Sea and transit delays in the Panama Canal.
- Over the last 52 weeks, Dorian LPG was up 158% vs. the Energy Sector (XLE) -3.12%. It is among the highest-performing Quant energy stocks, offering investors stronger growth, profitability, and a better valuation framework than the sector.
The liquefied petroleum gas shipping industry has risen steadily since 2020 and is forecasted through 2028 to grow at a CAGR of about 7.3%. The outlook looks solid, largely due to the expected boom in demand from Asia, which accounts for 60% of global seaborne volumes.
Asian LP Gas Import Demand (Dorian, LPG November 2023 Investor Presentation)
Asian LP gas imports are expected to grow almost 10% in 2024 to roughly 90 million tons/year, bolstered by demand from China’s petrochemical industry and India’s infrastructure development frenzy . Meanwhile, U.S. infrastructure expansion is expected to boost American LPG production and exports.
I have a stock for investors eager to exploit these positive trends - one that tops the energy sector list for 2024 based on Seeking Alpha’s Quant scores. Dorian LPG Ltd. ( LPG ), a U.S.-based global shipper of liquefied petroleum gas, saw its stock price skyrocket 158% in the past year while it delivered nearly 170% in total returns. Considering the sector performed so poorly, this return is quite exceptional. There is no reason to shy away from stocks with strong price momentum . The stock has performed well with good reason.
Dorian is well-positioned to exploit a potential boom in freight rates as rising geopolitical tensions in the Red Sea impact trade routes. Despite a dramatic rise in stock price, EBITDA margins of almost 70%, and strong top and bottom line growth, Dorian LPG is trading at just over 5x earnings while its PEG ratio at 0.04x is at a 75% discount to the sector median. As a result of stellar momentum, a solid valuation, and widening margins, among other factors, LPG has secured superb Quant grades across the board and looks like a solid buy.
Dorian LPG Ltd. Stock
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Market Capitalization: $1.78B
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Quant Rating: Strong Buy
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Quant Sector Ranking (as of 1/3/2024): 1 out of 234
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Quant Industry Ranking (as of 1/3/2024): 1 out of 55
Dorian is the #1 ranked stock among 234 energy stocks rated by Seeking Alpha’s Quant Ratings and made my top ten stock picks for 2024 due to its stock price momentum, solid underlying profitability, strong growth, and inexpensive valuation metrics. Dorian was also one of the highest-performing energy stocks in 2023 and is up around 158% in the past twelve months, while the S&P 500 rose under 25%.
LPG Stock Price Return vs. S&P 500
LPG Stock Price Return vs. S&P 500 (SA Premium)
Headquartered in Connecticut with offices spread across Europe, Dorian LPG owns and operates a fleet of 25 very large gas carriers ((VLGC)) that transport products worldwide and achieved over $490M in total revenues over the trailing twelve months. Revenues grew by a CAGR of 17% over the past three years, including 62% year-over-year, while EBITDA rose 22% and 93%, respectively. The company delivered solid results in the most recent quarterly filing for the period ending September 30, 2023, compared to the same period in 2022, with key quarterly metrics as follows:
Key Quarterly Metrics:
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Utilization increased from 90% to 96.5%
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Time charter equivalent ((TCE)) rose 60%
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Sales: +90% to $144mln
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Adjusted EBITDA: +280% to $104mln
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Net Income: +126% to $76.5Mln
Although the company has benefited from an upward swing in shipping rates, it has also expressed concerns about the record level of volatility in market prices. The Baltic VLGC index price - a key barometer for LPG to measure rates for the Middle East to Asian freight routes - jumped more than 25% between the second and third quarters of 2023 - from $95/ton to over $120/ton. Dorian said the tight VLGC supply/demand balance and logistical constraints kept freight rates consistently above the five-year highs for the period.
LPG Stock’s Factor Grades
LPG Stock’s Factor Grades (SA Premium)
Seeking Alpha Factor Grades rate investment characteristics on a sector-relative basis. LPG Factor Grades include A’s in momentum and valuation and B’s in growth and profitability, with an overall Quant Rating of 4.98, highlighting the stock as one of the most profitable in the sector.
Profitability & Growth
Dorian LPG’s revenue, profits, and cash flow continue to grow remarkably relative to the sector and peers. In the trailing twelve months, gross profit margin surpassed 75% while EBITDA almost hit 70%. Dorian’s net income margin is 272% above the sector median, and levered free cash flow is 484%.
LPG Profitability Grades (SA Premium)
Dorian’s key profit metrics not only dwarf sector medians but are also significantly higher than oil and gas transportation peers.
LPG Stock's Key Profit Metrics Outperforms Sector Peers (SA Premium)
Revenue and profits will likely continue based on forward underlying metrics driven by consensus estimates. Dorian LPG’s revenue growth forward metric is 21%, based on comparing last year’s sales to consensus targets two years out. Forward EBITDA growth is 31%, EBIT is 41%, and EPS is 55%.
LPG Growth Grades (SA Premium)
Although Dorian’s Q2 FY 2024 EPS of $1.85 missed by $0.19 and revenue of $144.7M missed by $13.42M, the company’s quarter was very strong. With record EBITDA, resulting in another $1 per share dividend and offering a strong balance sheet and ability to return $650M to shareholders since its 2014 IPO, Dorian was rated a top high-yielding dividend stock in 2023. LPG’s dividend yield has averaged nearly 12% since they began awarding them in 2021. The company paid out $4.00/share in dividends over the past twelve months ($1.00/share per quarter), and consensus estimates have it averaging the same in the next three fiscal years.
Another good sign for LPG regarding future growth is the upward revisions to earnings targets. Over the last 90 days, three analysts have revised Dorian LPG’s estimates up.
LPG Revisions Grade (SA Premium)
Momentum and the company’s ability to grow profitably are critical factors in assessing a stock. Still, we must also examine whether these strong characteristics justify the current market price.
Valuation
Despite Dorian LPG’s price soaring over the past year while recording industry-leading profits, the stock is still trading at a huge value, especially when we look at the PEG ratio (current P/E ratio divided by projected growth), which is 75% below the sector median.
LPG Stock Valuation (SA Premium)
Although Dorian LPG has garnered high grades across the board in every Quant category, investors should also be aware of the possible downside from internal and external factors.
Risks
Shipping market rates can be quite volatile. Although rates rose to historic highs in 2023, a dramatic slide could significantly impact revenue and profitability. In addition to Red Sea tensions, major moves like OPEC production cuts and developments related to China’s economic stimulus will have a major impact on the global LP gas supply and demand balance. For example, VLGC prices (Baltic VLGC index) fell to $106/ton by the end of October and rose to $150/ton in November before closing the year at around $130/ton.
One risk investors should consider when evaluating Dorian LPG is it appears highly leveraged with a debt-to-common equity ratio of 90%. However, the debt payments may be manageable, given the operating profit-to-interest expense ratio is nearly ten. Another issue to keep an eye on is earnings surprises. Dorian LPG missed quarterly revenue and EPS targets half the time over the past two years, including the most recent quarter, but this top energy stock continues its uptrend and is Quant Strong Buy-rated.
Concluding Summary
Dorian LPG is one of the highest-performing stocks in 2023, and it is currently Quant-rated #1 in its industry and sector in 2024. A review of Dorian’s profitability, growth, and valuation metrics - combined with a bright market outlook – LPG is extremely attractive and has risen by +150% over the past year - with industry-leading profit margins while trading at a mere 5.2x earnings and has a 0.04x PEG ratio due to solid earnings growth projections. Despite the dramatic increase in the stock price, the P/E GAAP ((TTM)) is lower now at 6.9x vs. a year ago at 7.85x.
The LP gas shipment industry could see demand from Asia grow by 10%, driven by China’s petrochemical sector and Indian infrastructure projects. And given the potential for shipping rates to rise amid geopolitically-induced disruptions in trade routes, investors should consider this energy stock pick for a portfolio.
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Dorian LPG: Top Energy Stock Poised To Continue Soaring In 2024