Thursday, FBR Capital Markets initiated coverage of Excel Maritime Carriers, Ltd. (EXM) stock with a Market Perform and a price target of $6.
Analyst Robert MacKenzie thinks the company has taken the necessary steps during the last year to navigate the challenging environment and believe further dilution is unlikely.
The analyst believes that in the next 18 months, three things will happen that will make investors less concerned about investing in EXM shares: aggressive debt repayment, the renegotiation of bank loan waivers in 2011, and the official expiration of the greenfield Korean shipyard contracts.
The analyst based his price target of $6.00 on 5x 2010 cash flow of $1.22 per share. This multiple is above Excel's historical average of 4x and slightly ahead of the industry average of 4.6x. The higher-than-historical multiple is warranted, in the analyst's opinion, because the company now has a younger fleet following the Quintana acquisition.
The analyst believes a higher-than-historical industry multiple is appropriate because the company has manageable idiosyncratic risk following the steps it took during this downturn and because the industry's earnings in 2010 should be near trough levels.
Currently, EXM is down $0.07 or 1.00% and trading at $6.92.
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