Shares of Matson (NYSE:MATX) plunged on Friday morning and were down more than 25% at 10:45 a.m. EDT. Weighing on the stock was news that a rival plans to launch a competing shipping service. That new competitor could cut into the company's profits, which led two analysts to downgrade its stock.
Yesterday, TOTE Maritime announced plans to establish a new shipping service between the U.S. mainland and Hawaii. The company, which currently ships to Alaska and Puerto Rico, has signed a letter of intent to acquire up to four newbuild containerships, and it has already secured terminal space in Honolulu. These ships are similar in size to the Aloha-class vessels that same shipyard is building for Matson. The first two of TOTE's ships are scheduled for delivery in 2020 and 2021, respectively, which is just in time to meet new environmental regulations that will take effect in 2020, necessitating the replacement of older ships.
Analysts see the move as a potentially stiff future headwind for Matson, which is the leading shipper to from the mainland to Hawaii and currently provides the only container ship service from the Pacific Northwest as well as the only direct service from Oakland. An analyst at Stephens, for example, downgraded the stock from overweight to equal weight while slashing the price target from $36 all the way down to $23, citing a risk to Matson's market share, which could have a material impact on future profitability. Meanwhile, Wells Fargo downgraded the stock from market perform to underperform.
Before the TOTE announcement, Matson had been a top buy in the shipping sector given its nearly unrivaled position in several key Pacific trade routes. However, TOTE hopes to steal some of this market share by building boats that can run on those same routes. While it's likely that TOTE will take some share, it will be several years before its first ship sets sail, which gives Matson some time to adjust. Further, it's already ahead of the game having previously ordered four new builds to renew its Hawaiian fleet, all of which should enter service before TOTE's. Because of that, today's sell-off appears to be a bit of an overreaction since TOTE's big bet on Hawaii might not damage Matson as much as the market fears.