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Overseas Shipholding Stays Neutral


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A leading global seaborne energy transportation company, Overseas Shipholding Group Inc. recorded mixed financial results for the second quarter of 2012. The company reported losses for thirteen consecutive quarters.

However, the top line surpassed the Zacks Consensus Estimate followed by a year-over-year increase in revenue.

Overseas Shipholding maintains a diverse fleet and a balanced mix of spot and time-charter contracts. The company has taken quite a number of steps to increase the size of its fleet, including several acquisitions. More importantly, it has significantly increased the diversity of its fleet, making its revenue stream less dependent on the inherently volatile spot market.

A major positive for Overseas Shipholding is that it owns the industry’s most sophisticated and latest technology driven fleet. Moreover, increased demand for liquefied natural gas coupled with growing U.S. and the European economies will further accelerate the demand for LNG tankers.

On the downside, the shipping industry is highly competitive and fragmented. Overseas Shipholding is facing stiff competition from international flag tankers like Tidewater Inc. (TDW - Snapshot Report) and Frontline Ltd. (FRO - Snapshot Report).

Recently, Standard & Poor’s Rating Services (S&P) downgraded the long-term corporate rating of Overseas Shipholding to “CCC+” from “B-” with a negative outlook. The primary concern for S&P is that the continuously falling oil tanker rates may place the company in a financial crunch when its massive $1.5 billion of evolving credit facility will mature in February 2013.

Moreover, continuous decline of Overseas Shipholding’s spot rate may continue to hamper its EPS thereby acting as a headwind for the company going forward. We, thus maintain our long-term Neutral recommendation on Overseas Shipholding.

Currently, it has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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