One Big Red Flag After DryShips Earnings

Blake Bos is bearish on DryShips  (NASDAQ: DRYS  ) and here's why. The company generated about $113 million of earnings before interest, taxes, depreciation, or amortization in the first quarter, this can also be viewed as an approximation of operating cash flow. Of that, $56 million goes to interest expenses, and the remaining $57 million can be used for capital expenditures. Simply stated, $57 million for DryShips isn't going to cut it. This low level of cap ex crimps the company's ability to modernize its fleet with fuel-efficient ships, and that, in turn, puts DryShips at a competitive disadvantage. In fact, if you want to invest in a shipping company, a better alternative is Diana Shipping  (NYSE: DSX  ) , with a more modern and fuel-efficient fleet than DryShips.

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  • Report this Comment On May 23, 2013, at 9:16 PM, Ostrowsr wrote:

    I thought DRYS had THE youngest fleet of them all just 2 years ago? How can it change so quickly? Also, based on .35 earnings next year, the PE is only 6 and the growth is 10%.

    I'll buy a PE of 6 and a PEG of 0.6 any day.

  • Report this Comment On May 23, 2013, at 9:51 PM, TMFBos wrote:

    Hello Ostrowsr,

    I'm not sure if they did or not two years ago, but lots of ship deliveries have occurred since then which have changed company fleet profiles drastically. Dryship's average fleet age is 9.8 years old while Diana's is right at 7. (I'm only counting ships that have been delivered and are used for dry bulk)

    Also, I was curious about that 10% growth figure you had, and it looks like that is the highest end of analyst estimates. The average estimate is -9% growth. I'm personally cautious about purchasing investments based on forward PE's. With DRYS in particular you'll want keep an eye on Time Charter Equivalent Rates (TCE). To break even they'll need to reach upwards of $14,000/day under current interest and fleet expenses. Even at a daily rate such as that, it doesn't leave a lot of cushion for very much CAPEX or SG&A. I'd personally be leary of creating any large positions until rates have clearly started to show improvement.

  • Report this Comment On May 27, 2013, at 3:56 PM, imacg5 wrote:

    No, DRYS has never had the youngest fleet.

    It has unfortunately been reported that way by confused authors.

    There isn't a chance that DRYS will earn .35 next year. The average is distorted by one analyst who has them earning $1.60 but no one in the shipping business has rates rising significantly next year.

    The size of the fleet will again grow far more than the rise in demand.

    And that growth they speak of is strictly because they post the consolidated revenue and earnings of ORIG and DRYS.

    DRYS revenue has been consistently falling.

    ORIG is rising because of the addition of more drillships

    And DRYS does not have access to ORIG revenue and earnings.

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4/15/2014 4:00 PM
DRYS $3.10 Down -0.03 +0.00%
DryShips, Inc. CAPS Rating: ***
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Diana Shipping, In… CAPS Rating: *****

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