At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best...
If DryShips (Nasdaq: DRYS ) investors thought AK47-toting Somali pirates were bad, then wait till they get a load of the people coming after 'em this morning -- nuclear-armed analysts.
Friday started off with a bang as Wall Street Wizard Oppenheimer downgraded DryShips shares to "perform" on worries about the firm's latest stock offering. As you may recall, back in February Oppenheimer stunned the skeptics with its upgrade of DryShips. Why? Two key reasons were that:
- DryShips was just about done with a $500 million equity offering, and dilution fears were accordingly on the wane.
- In exchange for all the new shares, DryShips was of course getting cash -- improving its liquidity and thus lowering its risk of defaulting on loans.
Except, apparently not enough. Ten weeks after Oppenheimer called the bottom on DryShips, the bulk shipper has indeed polished off its $500 million dilutive offering... and embarked on a brand new $475 million share floatation. (A "floatation" that, ironically, is causing the shares to sink.) But was this a bad call on Oppenheimer's part? Not necessarily.
Let's go to the tape
Fact is, while Oppenheimer generally shows itself to be an analyst of middling skill (CAPS puts the analyst's overall accuracy on its picks at less than 49%), and one which underperforms the market on picks both bullish...
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Stock
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Oppenheimer says:
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CAPS says:
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Oppenheimer's Pick Lagging S&P By:
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Time Warner (NYSE: TWX )
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Outperform
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**
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23 points
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Yahoo! (Nasdaq: YHOO )
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Outperform
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**
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17 points
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Novavax
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Outperform
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*
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16 points
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... and bearish, alike ...
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Stock
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Oppenheimer says:
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CAPS says:
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Oppenheimer's Pick Lagging S&P By:
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Wynn Resorts (Nasdaq: WYNN )
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Underperform
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*
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48 points
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Suntech Power (NYSE: STP )
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Underperform
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****
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43 points
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Vimpel-Communications
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Underperform
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*****
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23 points
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... the fact remains that when it comes shippers, it's done pretty well. An outperform call on Navios Maritime (NYSE: NM ) netted 16 percentage points of market outperformance and one on Diana Shipping (NYSE: DSX ) gave it six points. And with DryShips, Oppenheimer has an even better compass. Twice it's made affirmative buy/sell calls on the stock -- advising investors to dump DryShips in January, then buy it back in April -- and combined, those two picks have netted Oppenheimer 86 points.
Need I even say it? When an analyst is this good at calling tops and bottoms on a particular stock, you need to listen to what it's saying when it changes its tune.
So? What is it saying?
"This is the company's third ATM [broker-speak for 'at the market,' or 'offer to sell shares at whatever the going rate might be'] offering since November, which has increased the share count from 43 million to 185 million currently." Seeing as DryShips now intends to float $475 million worth of new shares, we're now looking at the company's shares outstanding rising from 185 million to... more than 240 million, assuming current prices hold.
That's an awful lot of new shares floating 'round in the drink, Fools. No wonder Oppenheimer got spooked. The question, though, is: Should you be scared of DryShips?
I dunno. I mean, yes, the dilution is massive. Yes, we've got serious concerns about management, which tends to alternately play the capital markets like a fiddle, and play its own shareholders for suckers.
And yet, between what it garnered from the last share issuance, and what it appears set to reap from this one, DryShips has made strides toward shoring up its balance sheet with these share issuances. Most analysts expect to see earnings tick up significantly next year, and as I mentioned back in February, free cash flow seems set to emerge from underwater as DryShips puts its capital spending program on the beach.
Foolish takeaway
Personally, it's not so much the share dilution as the simple fact that I don't trust management that keeps me from boarding DryShips. But one thing I can tell you for certain: If and when Oppenheimer takes the next step and upgrades the shares to "buy," sounding the all clear, I'll be listening.
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