Teekay Shipping Keeps Afloat

We are maintaining our Hold on Teekay Corporation (TK - Analyst Report), but reducing our target price to $18. TK should report third quarter results shortly. For the time being, we are continuing our diluted EPS estimates at $3.75 for 2008 and $4.00 for 2009.

Our estimates do not incorporate potential revisions related to changes in the accounting treatment for derivatives. TK announced that these changes will necessitate restatements of financial results back to 2003. TK reported second quarter EPS of $1.05 before nonrecurring items, below consensus of $1.20 and our estimate of $1.10, largely reflecting higher-than-expected minority interest expense.

Importantly, TK recently announced a 15% increase in the annual dividend rate to $1.265, providing a 7.7% yield, and a $200 million stock repurchase plan. 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.

Read the full analyst report on TK.