Why Safe Bulkers Is Bouncing Back

On Wednesday, Safe Bulkers (NYSE: SB  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Safe Bulkers isn't the biggest name in the shipping industry, but it has suffered through many of the same economic challenges that its larger peers have faced. But with some signs that the environment for shipping companies may finally be starting to improve, the industry is hoping to bounce back from its long period of weakness. Let's take an early look at what's been happening with Safe Bulkers over the past quarter and what we're likely to see in its quarterly report.

Stats on Safe Bulkers

Analyst EPS Estimate

$0.21

Change From Year-Ago EPS

(34%)

Revenue Estimate

$40.14 million

Change From Year-Ago Revenue

(10.4%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Safe Bulkers ship shareholders some better earnings this quarter?
Analysts have continued to have negative views on earnings at Safe Bulkers, recently cutting their consensus estimates for the first quarter by $0.06 per share and chopping $0.27 from their full-year 2013 EPS estimates. But the stock has risen despite that bad sentiment, with shares up more than 33% since early February.

The reason for the disconnect between earnings and stock performance has to do with the changing fundamentals for shipping overall. For years, shipping companies both on the dry-bulk and the tanker side of the industry have suffered from weakness in the global economy after having built huge numbers of new ships during better times. That forced Overseas Shipholding Group to seek bankruptcy protection late last year and has left tanker giant Frontline (NYSE: FRO  ) under considerable financial pressure as it continues to labor under a substantial debt load.

As a result, shippers have reversed course on their shipbuilding prospects. DryShips (NASDAQ: DRYS  ) ended up having to pay $21.4 million in order to get rid of two tanker-ships that were under construction, concluding that it was worth it to avoid having to pay the costs of maintenance and upkeep in a weak environment. Safe Bulkers CFO Konstantinos Adamopoulos said in March that he expected a net capacity increase of just 35 million deadweight tonnes for the industry, well below the 100 million that the current schedule of industry vessel completions would suggest.

The slowing rate of capacity increase should help bolster shipping rates, and that in turn has investors recognizing the value proposition among shipping companies. With valuations knocked down to rock-bottom levels, even the hint of good news has been enough to send Safe Bulkers and its peers rising sharply.

In Safe Bulkers' quarterly report, look closely at the shipping rates that the company has been able to get recently for its vessels. Any upturn for the industry will first show itself in shipping rates, and while it may take a while for industry fundamentals to assert themselves, the key will be how much they're able to bolster profits for Safe Bulkers and its peers.

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Related Tickers

8/1/2014 4:06 PM
SB $7.14 Down -0.15 -2.06%
Safe Bulkers CAPS Rating: ***
DRYS $2.74 Down -0.12 -4.20%
DryShips, Inc. CAPS Rating: ***
FRO $2.38 Down -0.03 -1.24%
Frontline Ltd. (US… CAPS Rating: ***

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