Back to top

Analyst Blog

International shipping company DryShips Inc. (DRYS - Analyst Report) has increased the floatation size and pricing of it’s majority owned subsidiary Ocean Rig UDW Inc. (ORIG - Snapshot Report) that will further reduce its stake in the deepwater oil drilling unit. The sale proceeds from the issue of shares will be received by DryShips as the selling shareholder.

Although, in 2007, DryShips acquired a majority stake in Ocean Rig but in the recent years it has partially divested the division and currently holds a 65% stake in the company. The Norwegian shipping company has increased the offering of Ocean Rig common shares to 7,500,000, which will translate into a total issue proceed of about $126.4 million. The issue, which is expected to close on Feb 14, 2013 will cut DryShips’ stake in the unit to 59.4%.

The drybulk shipping industry is cyclical in nature with volatility in charter hire rates and profitability. Though DryShips’ legacy drybulk shipping cargo division and newly formed oil tanker division continue their pathetic performances, the oil rig business is delivering good results for the company.

The acquisition of Ocean Rig’s asset and contract portfolio diversified DryShips’ assets and sources of cash flow. Furthermore, Ocean Rig’s operational expertise provided DryShips with the necessary platform to compete in the ultra-deep water drilling sector.

The offshore drilling division continues to flourish buoyed by rising expenditures from oil companies and success in ultra deep water oil field discoveries. The deepwater oil drilling segment is currently witnessing shortages of rigs throughout the world, as the energy companies have raised the level of production.

At the end of the third quarter of 2012, Ocean Rig had approximately $4.5 billion of order backlog over the next three years. We believe the company is issuing the shares to purchase more high quality drillship fleets, which will boost DryShips’ top line going forward.

Other Stocks to Consider

Some other stocks in the shipping industry that are currently performing well are Frontline Ltd. (FRO - Snapshot Report) and StealthGas Inc. (GASS - Snapshot Report). Frontline currently have a Zacks Rank #2 (Buy) while StealthGas carries a Zacks Rank # 3 (Hold).

Currently, DryShips carries a Zacks Rank #3 (Hold).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%