Genco Shipping Stock: Wall Street Thinks 13.8%-Yielder’s Price Could Double
Why GNK Stock Is Worth Considering
The marine shipping industry has been experiencing a bit of a resurgence, and dry bulk carriers like Genco Shipping & Trading Ltd (NYSE:GNK) are poised to benefit.
According to one report, the dry bulk shipping market was worth $4.1 billion in 2022 and is expected to expand from $4.2 billion to $5.3 billion between 2023 and 2030. That would translate to a compound annual growth rate (CAGR) of 4.0%. (Source: “Dry Bulk Shipping Market is Anticipated to Grow at a CAGR of 4% by 2030,” Market Research Future, last accessed July 10, 2023.)
The biggest growth is forecast to come from increased transportation of coal and steel, as well as increased seaborne trade. That’s just the kind of news Genco Shipping stockholders want to hear.
Genco Shipping & Trading Ltd is the largest U.S.-headquartered dry bulk shipping company. The New York City-based company provides a full-service logistics platform for the transportation of commodities worldwide.
The company uses its diverse fleet of 44 modern vessels to transport major (iron ore and coal) and minor (grains, cement, fertilizer, etc.) commodities across every key worldwide shipping route. (Source: “Sidoti June Small-Cap Virtual Conference: June 2023,” Genco Shipping & Trading Ltd, last accessed July 10, 2023.)
The company’s two-pronged approach to its fleet composition combines the upside potential of larger Capesize vessels (which mostly carry major bulk cargoes) with the more stable earnings stream of minor bulk vessels.
To enhance its operations, Genco Shipping launched a comprehensive value strategy in 2021. That strategy is centered on low financial leverage and three key tenets: attractive quarterly dividends, debt reduction, and fleet growth.
To that end, Genco Shipping & Trading Ltd launched a new dividend policy that’s tied to quarterly cash flow, paid down $287.0 million (64%) of its debt, recently acquired two fuel-efficient Ultramax vessels, and completed fuel-efficiency upgrades to seven vessels.
Even though the Chinese economy is open again, it’s still struggling in the wake of the COVID-19 pandemic.
The near-term volatility has actually been good for Genco Shipping & Trading Ltd. The pandemic was a boon for the global shipping industry, with supply chain issues lengthening shipping times while the demand for goods spiked. This sent TCE rates soaring, which resulted in record-high profits and cash flow for marine shipping companies.
These companies had to decide what to do with all that cash: invest it in new ships, pay down debt, or increase dividends and share buybacks. Genco Shipping & Trading Ltd did the wise thing, clean up its balance sheet.
TCE Rates Expected to Climb 20% in 2nd Quarter
For the first quarter ended March 31, Genco Shipping reported net income of $2.6 million, or $0.06 per share, compared to $41.7 million, or $0.97 per share, in the same period last year. (Source: “Genco Shipping & Trading Limited Announces First Quarter Financial Results,” Genco Shipping & Trading Ltd, May 3, 2023.)
The company’s revenue slipped in the quarter to $94.4 million, compared to $136.2 million in the three months ended March 31, 2022.
The revenue decline was primarily due to lower rates earned by Genco Shipping & Trading Ltd’s major and minor bulk vessels. The average daily time charter equivalent (TCE) rate for the company’s fleet in the first quarter was $13,947, compared to $24,093 for the three months ended March 31, 2022.
In the first quarter of 2023, spot freight rates softened due to various seasonal factors, including the timing of the Chinese New Year, the timing of frontloaded newbuilding deliveries, and a decline in cargo volumes due to maintenance and poor weather conditions in various exporting regions.
Toward the end of the first quarter, the freight market began to strengthen, driven by the subsiding of a portion of the aforementioned factors, as well as China’s continued economic reopening. As a result, Genco Shipping & Trading Ltd estimates that TCE rates increased in the second quarter by 20% sequentially to $16,679.
Moreover, in the first quarter of 2023, the company:
- Declared a dividend of $0.15 per share, its 15th consecutive quarterly payout
- Paid down $8.7 million of its debt on a voluntary basis, reducing its debt to $162.3 million
- Had an industry-low cash flow breakeven level
- Achieved a strong liquidity position of $260.4 million
Commenting on the results, John C. Wobensmith, Genco Shipping & Trading Ltd’s CEO, said, “Following a year during which we generated sizeable earnings and returned significant capital to shareholders, we continued to execute our value strategy in the first quarter of 2023 for the benefit of shareholders.” (Source: Ibid.)
He added, “Since implementing our differentiated value strategy in 2021, we have declared $3.39 in dividends, while continuing to pay down debt.”
Management Declared 15th Consecutive Quarterly Dividend
In the first quarter of 2023, Genco Shipping declared a dividend of $0.15 per share, for a current yield of 13.8%.
“Our first quarter dividend of $0.15 per share is our 15th consecutive dividend and reflects our commitment to shareholder returns despite quarterly rate volatility,” said Wobensmith. (Source: Genco Shipping & Trading Ltd, May 3, 2023, op. cit.)
While $0.15 was a frothy dividend, some investors were disappointed with it. The payout came on the heels of five quarters of payouts ranging from $0.50 to $0.79 per share. (Source: “Dividend History,” Genco Shipping & Trading Ltd, last accessed July 10, 2023.)
Because of the company’s current dividend calculation policy—which comprises operating cash flow minus capital expenditures, debt repayment, and an additional cash reserve—the payout fluctuates. Genco Shipping said its first-quarter earnings were hampered by various seasonal factors.
The freight shipping market has strengthened since then, partly due to China’s demand for commodities growing and grain harvests increasing. Therefore, GNK stock’s payout should rise over the coming quarters. For the full year, Genco Shipping & Trading Ltd’s distributions could rise to as high as $1.22 per share. (Source: “Genco Stock Is a Good Bet as Rising Shipping Rates Help Boost Dividend,” Barron’s, May 26, 2023.)
On the future of the company’s dividends, Wobensmith said, “We believe our balance sheet strength, available liquidity, and improving market expectations provide support to achieve our goal of continued and sizeable dividend payouts.” (Source: Genco Shipping & Trading Ltd, May 3, 2023, op. cit.)
Undervalued Genco Shipping Stock Could Double
Despite Genco Shipping’s improved balance sheet, updated dividend policy, and lowest cash flow breakeven rate among U.S.-listed marine dry bulk shippers, GNK stock hasn’t performed as well as many would have liked.
As of this writing, Genco Shipping stock is down by four percent year-to-date and 9.5% year-over-year. Not great, but far better than what’s been going on with Breakwave Dry Bulk Shipping ETF (NYSEARCA:BDRY), which is down by 45% year-to-date and off 68% year-over-year.
Chart courtesy of StockCharts.com
The outlook for GNK stock is pretty solid, with rising shipping rates juicing the company’s bottom line.
Of the Wall Street analysts providing a 12-month share-price forecast for Genco Shipping & Trading Ltd, their low estimate is $18.00 per share, their median estimate is $24.00 per share, and their high estimate is $28.00 per share. This points to gains in the range of roughly 27% to 100% from Genco Shipping stock.
The Lowdown on Genco Shipping & Trading Ltd
Genco Shipping is an outstanding marine shipping company with a diverse fleet of vessels, a strong cash position, a low debt level, and the lowest cash-flow breakeven point among U.S.-listed marine dry bulk shippers. On top of that, GNK stock pays reliable, high-yield dividends.
The longer-term outlook for Genco Shipping & Trading Ltd is robust, with shipping rates on the rise and relatively few new dry bulk vessels on order. This should help the company deliver on its key value strategy, which is focused on dividends, deleveraging, and growth.