Bumping Up Target on Teekay

We are maintaining our Hold on Teekay Corporation (TK - Analyst Report), but increasing our target price to $54. TK reported first quarter diluted EPS of $0.83 before nonrecurring items, below the consensus of $0.96 and our estimate of $1.26, largely reflecting higher-than-expected expense growth.

Despite this, we are maintaining our 2008 diluted EPS estimate at $3.00 due to increased revenue expectations from current strengthening in spot tanker freight rates, reflecting growing tanker demand, limited fleet growth and higher volumes of crude imports into China.

TK recently increased its dividend by 16% to a $1.10 annual rate, providing a 2.7% yield. At its current price, TK stock is trading at 15.7X its 2009 consensus earnings estimate, representing a discount to the peer median multiple of 16.2X, based on 2009 consensus estimates. Given our view that peak spot rates and earnings have likely already been achieved, we do not believe that anything more than modest multiple expansion from the current level is justified. We reiterate our Hold recommendation with a target price of $54 based on roughly 17X our fiscal year 2009 EPS estimate of $3.15.

Read the full analyst report on TK