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Why Kept at Neutral?
The stock price of Excel Maritime has plummeted over 66% in the last year and is currently trading at the low end of its 52-week price range. With respect to several valuation metrics, Excel Maritime is trading at significantly low multiples compared with S&P 500 and the industry average. We believe that extremely low level of valuation may limit further downslide of the stock price. Excel Maritime currently has a Zacks Rank #3 (Hold).
Nevertheless, in our view this troublesome situationis mainly attributed to the gloomy prospects of the drybulk shipping industry. This sector continues to face serious challenges as the spot vessel rates are now even lower than their levels during the recession.
Risk/Reward Currently Balanced
Capesize vessels, which are mainly used for drybulk goods, faced the major brunt of this competition. In the spot market, capesize vessel rates fell below the operating costs. In contrast, the capesize vessel rate was a massive $40,000 per day just a couple of year ago when the economy was reeling under recession. We believe that the continuation of the extremely low spot rate may also bring down the fixed timecharter rates. This may severely impact the overall finances of Excel Maritime.
Meanwhile, we expect the ongoing strong demand for drybulk trade to continue in the near future buoyed by a healthy demand for iron ore and coal from China. Growing production of steel and electricity in China will sustain its import demand for iron ore and coal. Currently, China accounts for 60% of global iron ore utilization and facilitates around 35% of the global dry-bulk shipping trade. In addition to China, India has also become a major importer of drybulk goods, such as coal.
Other Stocks to Consider
Other stocks to consider in the drybulk shipping industry include Kirby Corp. ( KEX - Snapshot Report ) , Tsakos Energy Navigation Ltd. (TNP) and DryShips Inc. ( DRYS - Analyst Report ) . While both Kirby and Tsakos Energy currently carry a Zacks Rank #2 (Buy), DryShips has a Zacks Rank #3 (Hold).
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