Frontline Ltd: Zacks’ Bull of the Day Play

Frontline Ltd (FROSnapshot Report) is a shipping tanker growth story.  After easily beating both the Zacks Earnings and Revenue consensus estimates last quarter, management announced, in early July, the re-merger with Frontline 2012 Ltd (Norway OTC) (FRNT).  This re-merger is designed to establish a tanker presence in United States markets, and to save costs from a potential IPO for FRNT.  This re-merger will enable Frontline to emerge as a market leader.  Also, management announced a new agreement with Ship Financed Limited (SFL) to reduce the charter rates for both shipping tanker sizes.  Due to the combination of these items, Frontline has become the Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) is a shipping company, through subsidiaries, owns and operates oil tankers and oil/bulk/ore carriers.  The company provides seaborne transportation of crude oil and oil products.  Its very large crude carriers (VLCC) primarily transport crude oil from the Middle East Gulf to the Far East, Northern Europe, Caribbean, and the Louisiana Offshore Oil Port, as well as Suezmax tankers in the Atlantic Basin.  As of the end of last year, the company’s tanker fleet consisted of 22 vessels.

In their most recent earnings announcement, the company saw revenues increase 13.4% y/y, and earnings per share demolished last year’s EPS of +0.04 to now +0.25.  Further, according to management, “the average daily time charter equivalents earned in spot and period market in the first quarter by the company’s VLCCs and Suezmax tankers were $49,400 and $33,100 compared with $27,900 and $26,000 in the previous quarter.  The spot earnings for the Company’s VLCCs and Suezmax vessels were $52,200 and $35,000 compared with $27,400 and $27,200 in the preceding quarter.”  Lastly, management’s fiscal responsibility enabled the company to fully repay its convertible bonds during the quarter.

Increasing Estimates

The table below shows Frontline’s Price and Earnings Estimate Consensus.  As you can see after 2 years of limited to flat growth, analysts now see the company tripling their price over the next year.

Over the past 30 days estimates have increased for 2Q 15, 3Q 15, FY 15, FY 16; 2Q 15 jumped from $0.09 to $0.21, Q3 15 rose from -$0.01 to $0.06, FY 15 increased from $0.34 to $0.54, and FY 16 improved from $0.11 to $0.19.

Bottom Line

The recent re-merging with FRNT, decreasing of long term debt, and improved revenues clearly show that management has changed the prospects of the company.  Frontline Ltd is now a growth opportunity for investors.

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