Monday, FBR Capital Markets upgraded Frontline Ltd. (FRO) shares to Market Perform from Underperform and increased its price target to $23 from $14.
Analyst Robert MacKenzie said that the company has alleviated near-term financing pressures and executed strong commercial management to earn above-average day rates. However, high cash break-even levels remain a concern, contributing to the analyst's Market Perform rating. Frontline reported second quarter EPS of $0.36, versus the analyst's loss estimate of $0.05.
The analyst noted that Frontline's spot double-hull very large crude carriers, or VLCCs, outperformed the spot market by more than 65% of the average earned rate for the market, which largely contributed to the company's second quarter earnings beat. A concentration on transatlantic routes and several tankers involved in floating storage helped to buoy day rates.
The analyst expects this premium to continue in proceeding quarters, albeit to a lesser degree. Frontline has the world's largest VLCC fleet and strong commercial management operations, which should allow the company to take advantage of regional strength.
Despite the unfinanced vessels, the company plans to exploit the overall fall in the tanker market in an effort to rejuvenate its fleet and increase cash flow. The analyst expects Frontline to take advantage of opportune acquisitions given its strong banking relationships and the ease with which it can tap the equity markets. Dividends remain the company's primary method to reward shareholders, with any additional fleet growth serving to further bolster dividend potential.
The analyst said that a sizable oil inventory overhang and tepid oil demand are the two primary headwinds for the market. Excess inventories must be worked through before the call on OPEC will be enough to sufficiently drive tanker rates higher. Nevertheless, the analyst is forecasting a modest 15% increase in VLCC day rates for 2010 as the global economy begins to recover.
The analyst added that despite stayed financing concerns and commendable commercial management, current tanker rates are well below the operating cost of the vessels. Frontline's numerous charter-ins creates an even higher cash break-even which the analyst expects to weigh on the stock and is largely the reason for his Market Perform rating.
Currently, FRO is down $0.98 or 4.21% and trading at $22.28.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.