Market-Crushing FRO Stock Surged Over Last 2 Years
Recent talk about building a thriving green energy industry and making the U.S. carbon-neutral by 2050 has turned some investors off oil and natural gas stocks.
According to a survey in 2022, 69% of Americans wanted to prioritize the development of alternative energy sources, and 31% wanted to phase out fossil fuels completely. (Source: “Americans Largely Favor U.S. Taking Steps to Become Carbon Neutral by 2050,” Pew Research, March 1, 2022.)
For energy stock bulls, it’s important to remember that the modern world is fueled by oil. With current technology, we have about 50 years of oil left—and global reserves increase over time. The fact is, oil isn’t going away anytime soon. The world needs oil, and it needs midstream companies like Frontline Plc (NYSE:FRO) to deliver it.
Frontline stock is a great investment that I’ve been following for a while now. And it keeps getting better. Since I first wrote about FRO stock in March 2021, it has rallied by more than 200%. On February 16, it hit a new 52-week intraday high of $24.53, its highest trading level in more than 10 years. As of this writing, it continues to trade near that price, at $23.41.
The outlook for Frontline Plc is robust. Recently, the company has done the following:
- Reported its best full-year financial results in 15 years
- Started taking delivery of 24 very large crude carriers (VLCCs), which will double its exposure to the VLCC market (the last of those 24 VLCCs is expected to be delivered in the first quarter of this year)
- Sold off five of its oldest VLCCs for $290.0 million
- Sold one of its oldest Suezmax tankers for $45.0 million
(Source: “Interim Financial Information: Fourth Quarter 2023,” Frontline Plc, February 29, 2024.)
Moreover, disruptions in the Red Sea have been benefiting larger vessel classes as oil and other products are forced to take longer routes around the Cape of Good Hope.
So, what exactly does Frontline Plc do? It’s a marine shipping company that owns one of the largest and most modern fleets in the industry.
As of this writing, Its fleet includes:
- 44 VLCCs, each of which are capable of carrying about 2.0 million barrels of oil
- 25 Suezmax ships, which are designed to move through the Suez Canal and are capable of carrying more than 1.0 million barrels of crude oil
- 18 Aframax vessels, which are capable of carrying up to 600,000 barrels of crude oil
(Source: “Fleet,” Frontline Plc, last accessed March 6, 2024.)
Best Annual Financial Results in 15 Years
For the fourth quarter of 2023, Frontline reported revenues of $415.0 million and profits of $118.4 million, or $0.53 per share. Its adjusted profits were $102.2 million, or $0.46 per share. (Source: Frontline Plc, February 29, 2024, op. cit.)
The company also announced that its full-year revenues increased by 27% to $1.83 billion, while its full-year profits grew by 38% to $656.4 million, or $2.95 per share. Its full-year adjusted profits jumped by 59% to $340.3 million, or $1.59 per share. (Source: “Fourth Quarter Presentation: Feb 2024,” Frontline Plc, last accessed March 6, 2024.)
Frontline Plc’s average break-even rate for its entire fleet in 2023 was about $25,700.
By vessel type, its average daily time charter equivalent (TCE rate)—how much it costs to use one of their ships per day— during the fourth quarter was:
- $42,300 for VLCCs
- $45,700 for Suezmax vessels
- $42,900 for Aframax vessels
Commenting on the 2023 results, Lars H. Barstad, Frontline Plc’s CEO, noted, “Frontline delivered its strongest full year result in fifteen years, despite muted markets in the fourth quarter. The year has been exceptional for the tanker industry and the asset classes we deploy…” (Source: Frontline Plc, February 29, 2024, op. cit.)
The outlook for the company’s TCE rates is solid, with first-quarter 2024 TCE estimates of:
- $55,100 for VLCCs
- $52,800 for Suezmax vessels
- $67,800 for Aframax vessels
Management Declared Dividend of $0.37 Per Share
Frontline’s goal is to distribute quarterly dividends that are equal to or close to its earnings per share (EPS), adjusted for non-recurring items. The timing and amount of its dividends are, of course, at the discretion of the company’s board of directors.
The board isn’t shy to act. It suspended Frontline stock’s dividends during the COVID-19 pandemic and reinstated them in March 2022 at $0.15 per share. (Source: “Dividend History,” Frontline Plc, last accessed March 6, 2024.)
Because the distribution amounts are based on the company’s earnings, they fluctuate.
Recently, Frontline Plc declared a fourth-quarter 2023 distribution of $0.37 per share (payable on March 27, 2024). That translates to a yield of 9.3% (as of this writing). That’s about triple the current U.S. inflation rate of 3.1%.
| Period | Distribution Per Share |
| Q4 2023 | $0.37 |
| Q3 2023 | $0.30 |
| Q2 2023 | $0.80 |
| Q1 2023 | $0.70 |
| Q4 2022 | $0.77 |
| Q3 2022 | $0.30 |
| Q2 2022 | $0.15 |
As noted above, FRO stock has recovered from the pandemic, trading at its highest levels since 2012. As of this writing, it’s up by 17% year-to-date and 46% year-over-year.
The outlook for Frontline Plc is bright, with high first-quarter 2024 TCE rates, which should help juice its profitability and energize investor optimism.
Chart courtesy of StockCharts.com
The Lowdown on Frontline Plc
Frontline stock has a lot going for it right now.
Frontline Plc recently purchased 24 modern VLCCs, entered an agreement to sell five of its oldest VLCCs and one of its oldest Suezmax tankers, reported its best full-year financial results in 15 years, and provided strong guidance for the first quarter of 2024. Furthermore, the demand for VLCCs is exceptionally high at the moment.
This all bodes well for FRO stockholders.