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Teacherman1 (54.00)

Ridiculously High Forward P/E

Recs

8

September 28, 2012 – Comments (5) | RELATED TICKERS: DSX , DCIX

This is just a quick look at the 2013 P/E's for DCIX and DSX which are shown on Yahoo Financial, provided by ZACK'S.

First, a brief look at the balance sheet (as of the end of Q2) for DSX.

They are showing cash at more than $400M, which is greater than the total liabilities for the company. They showed equity of 2.6 times the total debt.

While they are still profitable, the lower rates being generated on new vessels have made them less profitable than in the past, but not as low  as would be anticipated from the current trailing P/E  of 6, moving to a forward P/E for 2013, which is projected to be over 72.

The 2013 estimates are skewed by the fact that they range from a high of $0.36 annual earnings, to a low of (- $0.05). This has resulted in a consensus 2013 earnings estimate of $0.11.

I would expect that the "casual" investor would see that forward P/E estimate and decide that they were on the verge of bankruptcy.

A quick look at the balance sheet (as of the end of Q2) for DCIX, shows the following.

Cash of only $10M, but with a new share offering in July, that would raise about $55M. They show equity of just over 2 times the total debt. This is before the cash generated from the new shares.

They too, are profitable, but with some of their charters ending this year and next, the rates are much lower than in the past, but they still have a number of charters outstanding that generate very good rates. The short term re-chartering of the vessels coming off charter are, and will be much lower. They are being done short term, and at about "break even". While they will be less profitable, they will not be swinging to a loss, just "less profitable".

The 2013 earning estimates for DCIX are even more skewed than for DSX. They range from a high of $0.33 to a low of a negative (-$0.42). This results in a consensus estimate of about $0.06 in earning for 2013. This causes the trailing P/E of about 16 (which I think is itself show as too high) to jump to a forward P/E of 79 for 2013.

It is my belief that these extremely high forward P/E's, coupled with light trading by "day traders" making up only about one quarter of one percent of the outstanding shares, have "beaten" these companies down to a level that is significantly less than their true value.

DCIX for the intermediate term (based on dividend and share appreciation potential), and DSX for a longer  term hold (based on their "staying power" and potential to benefit from a global recovery).

I will be following up with a more detailed blog after the Q3 reports come out.

JMO and worth exactly what I am charging for it.

5 Comments – Post Your Own

#1) On October 21, 2012 at 7:36 PM, shamapant (80.44) wrote:

On a totally unrelated note, why did you close your pick of ACPW? Thinking about researching the stock but wanted to know if there was something big that stopped you from keeping the pick open.

 

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#2) On October 21, 2012 at 10:06 PM, ravens9111 (55.81) wrote:

Shippers are in trouble. Just look at OSG, FRO, and NAT to name a few. I would just stay away. Not worth the gamble. 

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#3) On October 24, 2012 at 11:41 AM, Teacherman1 (54.00) wrote:

shamapant

I closed my pick on ACPW because they were delisted from the regular exchange, and went on a special one. It looked to me like they were going to go private, because of what was happening with the "control" of the price, and who was buying and the amounts they were buying.

I tried to get back in, but they did not meet the requirements set by my broker, so I was unable to get back in, which I wanted to do. I did not want to open another account just for them.

I still like their long term potential. Hope this helps some.

raven9111

I appreciate your concern about shippers in general, and there are many I would not touch at all, but for the "intermediate term", DCIX is fine. By the middle of next year, they could start to have some problems if they are not able to renew the vessels coming off high rate charters, or get new deals that fit their model, but for now, they have a very strong balance sheet, are still profitable, and will continue to pay a good dividend.

This recent depressed share price for DCIX is because of very light volume, which has been controlled by a handful of traders, and one unrealisticaly  low forward EPS estimate by one analyst, which had them loosing $0.47 per share for 2013. While they will likely be less profitable, they will still be profitable, so that loss for the year is way out of line.

Of course, their counter parties could go bankrupt, or other "extreme" events could occur to change this, but shipping rates will not cause it.

I also like NM and DSX for the longer term. In the shipping business, the skill of management is paramount.

There are some that are purely "speculative", and I have played with and made money on them, but these are long term investment grade companies.

JMO and worth exactly what I am charging for it. 

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#4) On October 25, 2012 at 12:14 AM, shamapant (80.44) wrote:

Teacherman,

 Helps a lot! Thanks

Nikhil 

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#5) On October 29, 2012 at 8:01 AM, lemoneater (78.20) wrote:

Dear Teacherman,

Hope that you have a good week and that you and your wife had a better than usual weekend. Recently I've learned a new hobby--weaving. This summer my husband got me a small loom that is perfect making for tablerunners/scarves. I would like to know what colors your wife likes so that I could make her something to cheer her up. With cooler weather, I have the urge to work with yarn--a seasonal activity for me.

Please e-mail me your mailing address at limon eater at gmail dot com. (lemon was already taken :) 

Thanks for your friendship and good stock advice over the years. Take care. Lemoneater

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