Is Ship Finance International Limited Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Ship Finance International Limited (NYSE: SFL  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Ship Finance's story. We'll be grading the quality of that story in several ways:

  • Growth: are profits, margins, and free cash flow all increasing?
  • Valuation: is share price growing in line with earnings per share?
  • Opportunities: is return on equity increasing while debt to equity declines?
  • Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Ship Finance's key statistics:

SFL Total Return Price Chart

SFL Total Return Price data by YCharts

Passing Criteria

Three-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

182.1% vs. (46.2%)


Improving EPS



Stock growth (+ 15%) < EPS growth

16.6% vs. (51.7%)


Source: YCharts. * Period begins at end of Q4 2010.

SFL Return on Equity (TTM) Chart

SFL Return on Equity (TTM) data by YCharts

Passing Criteria

Three-Year* Change


Improving return on equity



Declining debt to equity



Dividend growth > 25%



Free cash flow payout ratio < 50%



Source: YCharts. * Period begins at end of Q4 2010.

How we got here and where we're going
We looked at Ship Finance International last year. It's slipped a bit in today's assessment to finish with only two out of nine possible passing grades. Ship Finance's free cash has been trending in the right direction, which helped it earn a pass where it failed last year -- however, the company's free cash flow payout ratio is now far too high at a mind-blowing 354%. Ship Finance's revenue and net income have both fallen as well during our three-year tracking period. Can this diversified shipper turn itself around and rebound? Let's dig a little deeper to find out.

Ship Finance has been enjoying strong quarterly earnings in recent months on the back of lucrative cash sweep agreements with tanker operator Frontline (NYSE: FRO  ) for Suezmax tankers and VLCCs, as the crude-oil tanker market has been enjoying a period of growth lately. The company has also raised nearly $300 million over the past two quarters by selling two VLCCs to Frontline for more than $122 million late last year and raising $150 million in new debt during the first quarter of 2014, in addition to refinancing $390 million in debt to lower interest rates. These positive moves have provided momentum for Ship Finance's stock, as nearly all of its modest three-year share price growth has taken place in 2014.

Ship Finance boasts plans to build up its distribution capacity on the back of an asset portfolio of high-quality vessels and strong counterparties. The company completed the acquisition of harsh-environment ultra deepwater jackup rig West Linus for $600 million in the fourth quarter -- this rig is expected to yield higher charter rates now that it's sub-chartered to oil and gas explorer ConocoPhillips (NYSE: COP  ) in the second quarter of 2014. The company also acquired two Panamax container vessels and seven container vessels in the fourth quarter, plus another nine container vessels and two dry-bulk carriers in the first quarter, bringing its reported fleet size up to 73 vessels.

Ship Finance seems well-positioned to benefit from improvement in the oil-tanker market. The company now sports a fixed-rate charter backlog of approximately $5.1 billion for both vessels and rigs, which are expected to run through an average remaining charter term of 5.7 years. Ship Finance's market position should strengthen with the delivery of four larger container vessels -- now under construction in Korea over the next several quarters -- and from the estimated $80 million in annual average EBITDA that will flow each year from the ConocoPhillips rig charter.

Putting the pieces together
Today, Ship Finance International has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 30, 2014, at 4:32 PM, Tillerman1976 wrote:

    So.. is it destined for greatness or not? Don't make a headline like that and put out such a wishy-washy mamby-pamby conclusion. I mean come on.. "... no stock is truly perfect." ??? Really??

  • Report this Comment On June 02, 2014, at 2:48 AM, Hohum777 wrote:

    The article makes some weak and pitiful arguments. It also includes a major, glaring error i.e. SFL sells two VLCCs to FRO.

    SFL is definitely a complicated entity. But this article hardly offered a fair starting point in breaking down the company. One thing for sure- I won't be counting on Alex wrt investing in SFL.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2977604, ~/Articles/ArticleHandler.aspx, 9/2/2015 8:19:44 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Alex Planes

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.

Connect with Alex on LinkedIn or Twitter for more news and insight:

View Alex Planes's profile on LinkedIn

Today's Market

updated Moments ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 4:04 PM
SFL $16.47 Up +0.12 +0.73%
Ship Finance Inter… CAPS Rating: ***
COP $48.19 Up +0.44 +0.92%
ConocoPhillips CAPS Rating: *****
FRO $2.64 Up +0.09 +3.53%
Frontline Ltd. (US… CAPS Rating: **