Ahead of the Bell: K-Sea Transportation

A Citi Investment Research analyst on Wednesday initiated coverage of K-Sea Transportation Partners LP with a "Buy" rating, citing the oil tank barge operator's long-term growth potential.

Analyst John K. Tysseland said the company benefits from a stable domestic market sheltered from foreign competition, rising charter rates, and a recently launched new building program.

As single-hulled vessels are phased out to comply with the Oil Pollution Act, Tysseland said K-Sea should gain from an expected rise in double-hulled vessel charter rates.

The company also boasts greater resources than most of its smaller and less-diversified competitors, he said, and should be able to grow further through acquisition as the market tightens.

Tysseland said the company's plan to spend $170 million over the next three years on the construction of new double-hulled vessels should further secure its market position. However, the analyst noted that rising labor and material costs might pressure its plans.

In the long term, the analyst said he expects the tanker market will grow at a modest rate, driven by increased pipeline capacity and refinery expansions.

Tysseland set his 12-month price target at $44. The stock closed Tuesday at $35.40.