Wednesday, FBR Capital Markets upgraded General Maritime Corp. (GMR) shares to Outperform from Market Perform with a price target of $9.
Analyst Robert MacKenzie attributed the upgrade based on attractive valuation. The analyst said that the recent 75% dividend reduction should free up capital for General Maritime to once again be countercyclical and purchase vessels at near-trough valuations over the next year or so.
The analyst believes GMR is attractively valued at 3.6x P/2010 CF and is trading at 0.7x the current price/net asset value, or P/NAV, which is anticipating further asset deflation. The analyst's price target of $9.00 assumes 10% further asset deflation and a P/NAV of 1.1x due to management's track record of countercyclical value creation.
Upside beyond the analyst's price target of $9 should come once there is more visibility into asset value appreciation or the timing of General Maritime's ability to be opportunistic.
The analyst believes the P/NAV premium multiple is warranted at this point in the cycle because the dividend cut overhang is behind the stock, asset values are likely near trough levels, and management has a strong track record of being countercyclical and creating shareholder value.
Once there is more visibility into asset price appreciation or the timing of opportunistic purchases, the analyst believes there could be further upside beyond his price target of $9.00. The seasonally strong fourth quarter should provide an opportunity for General Maritime to increase its contract coverage for 2010 at better rates than are currently available.
The analyst expects 2010 to be the trough for valuations and present opportunities to purchase vessels at attractive valuations.
Currently, GMR is up $0.60 or 7.71% and trading at $8.38.
For comments and feedback: editorial@rttnews.com