Frontline (FRO) operates the largest crude oil tanker fleets in the world. The last three years have not been kind to investors in tanker shipping stocks. Since the share price hit $70 in 2008 Frontline has gone from a $5 billion market cap company to a current stock market value of just under $1 billion. Is a turnaround in sight for Frontline and the other crude oil tanker stocks?
For the first quarter of 2011, Frontline reported net income of 20 cents per share compared to earnings of $1.02 per share a year earlier. The net would have been a loss of 8 cents per share without the gains from some vessel sales. Revenues for the quarter dropped to $234.8 million from $331.8 million a year earlier. The current Wall Street estimates for 2011 earnings for FRO range from a loss of 84 cents per share to a profit of $1.17.
The uncertainty about Frontline comes from the company's policy of chartering most of the company's tankers on the spot market. When times are good, spot chartering can result in $100,000 in profit per day per ship.
When spot rates are low, however, Frontline could be losing money every day on every ship. The ship buying binge by most of the tanker companies from before the 2008 collapse of commodity prices has left a glut of tankers available to haul crude oil, holding down spot rates to barely break-even for most shippers.
John Fredriksen, chairman of Frontline, stated in May he expects the value of tankers to collapse at some point in the next couple of years. At the time of than pronouncement, FRO was trading for about $20 per share.
Several analysts, including Erik Nikolai Stavseth of Arctic Securities ASA in Oslo, issued sell recommendations for Frontline. Fredricksen, whose net worth is reported to be greater than $10 billion, also noted in his remarks that his company will be ready to buy up ships when the prices do collapse.
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