FreeSeas, Inc. (NASDAQ:FREE)

CAPS Rating: 1 out of 5

An independent commercial shipping company that operates in the drybulk shipping markets through its three wholly owned subsidiaries: Adventure Two S.A., Adventure Three S.A. and Adventure Four S.A.

Recs

4
Player Avatar TheCorrectCall (60.17) Submitted: 4/6/2008 2:44:58 PM : Outperform Start Price: $29.51 FREE Score: -148.95

FreeSeas is a dry bulk carrier currently operating with 5 ships. Through recent acquisitions, that number will be up to 8 in the next six months. But that’s not all that’s growing…

For the year just ended, FREE’s revenues were up 71.8% for 2007 as compared to ’06. The consensus estimate for sales in 2008 is hair under $63 million, up from 20.15 million in ’07. That’s some supercharged growth.

Unfortunately FREE was unable to produce a profit for 2007. However, the company has improved its balance sheet by paying off some loans and is expected to be profitable for the year.

The consensus estimate from the 2 analysts that cover FreeSeas is $1.07 per share for the current year. At that estimate, FREE trades at roughly 5 ½ times its forward earnings.

This is where the fun starts. The average P/E ratio of the 50 companies that make up the Dow Jones Marine Transportation Index is 12.89. At the average P/E, FREE shares would be valued at $13.79, a return of 132%.

Let’s go back to FreeSeas revenue expectations. At 63 million, FREE is currently trading at 1.5 times its projected sales. The average DJ Marine stock trades at 3.39 times sales. At the industry average, FREEs share price would be a little less sexy at $13.35 per share.

But wait, there is more… On February 7th, FREE announced a quarterly dividend of 17.5 cents per share. That totals up to 70 cents per year. At the current stock price, that’s a 14% yield. According to FreeSeas CEO, Ion Varouxakis, it is the company’s stated policy to continue paying that 17.5 cents every quarter in 2008. Try to find that at your local bank.

So even if all of our projections are wrong and the stock doesn’t move an penny in the next 12 months, you’ll make 14% on your money. How sweet is that?

But quite frankly, If FreeSeas meets its 200% growth target for the year ahead, a 13 P/E and a 3.39 price to sales ratio seems kind of low.

We would also expect such explosive growth to catch the eye of more than 2 analysts, meaning more exposure for FREE.

Member Avatar dwot (42.57) Submitted: 6/13/2008 9:50:02 AM
Recs: 0

I gave this one a recommend because this is the precise reason why I underperformed it.Do you research and you find the lot of dry bulk shippers are increasing their fleet, a lot. So, with vast increased supply, what happens to the price support?

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