DryShips Target Cut, Stays Afloat

We are continuing our Hold on DryShips Inc. (DRYS), but cutting our target price to $4. In 2008's third quarter, DRYS posted diluted EPS before nonrecurring items of $3.53, up 49% year over year, but below our estimate due to higher-than-expected expense growth.

Revenues increased 126% year over year to $317 million, largely due to a 41% rise in TCE [time charter equivalent] rates to $63,965 per day (from $45,525 per day) and a 19% increase in voyage days to 3,465 days, as well as the addition of revenues from the acquisition of Ocean Rigs ASA, an ultra deep water (UDW) oil driller.

However, dry bulk rates have plummeted (the Baltic Dry Index is at a 22-year low), the company is issuing 19.4 million shares for the purchase of 9 Capesize drybulk carriers, and selling up to an additional 25 million shares to raise capital.

Read the full analyst report on DRYS

Read the full analyst report on DRYS