Teekay Shipping Stays Afloat

We are maintaining our Hold on Teekay Corporation (TK - Analyst Report), but reducing our target price to $15. TK reported 3rd quarter EPS of $1.29 before nonrecurring items, above consensus and our estimate of $1.12, largely reflecting higher-than-expected revenue growth.

We are cutting our 2008 diluted EPS estimate to $3.75 from $4.00, as well as our 2009 estimate to $1.15 from $2.75, as we have moderated our revenue assumptions. Results should reflect the impact of global economic weakening on both spot rates and shipping volumes. We note that TK released restated financial results for the first half related to changes in the accounting treatment for long-term incentive compensation.

TK recently announced a 15% increase in the annual dividend rate to $1.265 and a $200 million stock repurchase plan. However, we would not be surprised to see a dividend cut and suspension of stock repurchases in the event of a protracted economic downturn.