DryShips Inc. (NASDAQ:DRYS) continues to be one of the most controversial stocks on the market – a favorite of day traders and adrenaline junkies but a nightmare for retail investors. Recently, the dry bulker reported first-quarter results and has completed a R/S stock split with updated per share financial information in a May 12th press release.
The long-term outlook for DryShips is negative and will probably continue to be negative so long as George Economou is in charge. However, speculators may see a glimmer of hope in a stabilizing Baltic Dry Index and the presence of several reliable contracts in DryShips’ gas carrier and Newcastlemax fleets.
First Quarter Results
In a previous article, I reported Economou’s ‘guidance’ for DryShips’ full year, noting that the projections made several unrealistic assumptions. However, instead of backing off his horrible projections, Economou reiterated the claims and actually made them even more ambitious in the first quarter earnings report by stating, quote:
“On an annual basis, assuming all the vessels we have agreed to acquire have been delivered, that vessels are fully utilized…………. and the rest of the vessels in the Company’s fleet that are employed under time charters will earn their respective fixed rates, the Company estimates for indicative purposes that its active fleet (i.e. excluding laid up vessels in our offshore support fleet) will generate EBITDA of approximately $77.0 million. “
EBITDA of $77 million is $7 million more than Economou predicted back in April 28th. And DryShips may be misleading the market with such unrealistic claims. The projection suggests this cash burning company is capable of generating $77 million in EBITDA, when it lost $7,447 million in adjusted EBITDA for the first quarter of 2017 alone.
DryShips would be lucky to generate a single dollar in adjusted EBITDA in 2017. And to estimate annual EBITDA $77 million is completely misleading to investors because the projection relies on impossible assumptions that show no signs of coming to fruition.
The Good News
DryShips’ overall situation is bad, but there are some potential tailwinds in the Baltic Dry Index and some of the newly acquired assets.
The Baltic Dry Index as finally started to recover with Capesize rates up for almost a week straight to 1,725. Panamax rates, however, have fallen below 1,000. Shipping rates are volatile, and if DryShips wants to become profitable, the best way to reach this goal will be by getting fixed contract rates for its vessels.
In the dry bulk fleet, DryShips has three new Newcastlemax vessels that look like they will operate on charter rates. One is for $19,400 per day, and the other is $9,350 per day. The third vessel has an “index linked” time charter which is presumably tied to the performance of the Baltic Dry Index. All the other vessels in the dry bulk fleet operate on volatile spot rates.
In the gas carrier fleet, the situation is much better. DryShips expects to receive 4 VLGC vessels later in the year, and these all come with time charters of between $28,833 per day and $30,000 per day. The company also has a Suezmax tanker under construction that will operate on a “base rate plus profit share” with a contracted third party.
DryShips lost a great deal of money in the first quarter of 2017, but Economou is still providing unrealistically optimistic profitability scenarios that don’t help inform investors. DryShips’ situation is bad, but there is still a glimmer of hope in a stabilizing Baltic Dry Index and some high quality contracted acquisitions that should help the company’s financials later in the year.
Disclaimer: The author has no position or business relationship in any stock or company mentioned in this article, and he has no plans to initiate. The author is not receiving compensation for this article expect from Smarter Analyst. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.