Shares of crude-oil tanker operator DHT Holdings (NYSE:DHT) gained 13% in the first month of the new year, rising from $4.14 at the start of January to end at $4.69 at its close. Since February began, DHT's stock has roughly maintained its gain.
DHT operates a fleet of 20 crude-oil tankers out of its headquarters in Bermuda. The prices it can charge for chartering these vessels are broadly defined by the trend line on the Baltic Dirty Tanker Index (BDTI), which tracks average industry rates for chartering "dirty" tankers transporting crude oil (as opposed to "clean" tankers that transport refined petroleum products such as gasoline or diesel fuel). And because revenue and profit tend to flow from those charter rates, the price of oil-shipping stocks can usually be expected to track the trend on the BDTI.
But not so in this case. As it turns out, even as DHT's stock has enjoyed substantial gains in the year's first month, the trend on the BDTI has been down. The index entered the new year at an above-average 1,088 points but has since fallen 22% to a recent low of 846 points. Meanwhile, DHT reported Q4 2016 earnings just last month -- and its report showed revenue dropping 16% year over year, with earnings off by 40%.
So what is it that's supporting DHT's stock price in the face of sliding shipping rates for crude oil, retreating revenue, and plunging profits? Well, for one thing, rival tanker company Frontline (NYSE:FRO) made an unsolicited bid to acquire DHT last week, offering to pay $475 million for the company. (DHT is currently valued at $460 million.)
DHT rejected Frontline's offer, but that doesn't mean Frontline, or someone else, won't make a richer follow-up bid. And no matter which way the BDTI goes, as long as rumors of a buyout are in the water, it's unlikely that DHT stock will go back down anytime soon. In fact, if may even go up some more.