Last year was a rough one for investors in Seaspan Corporation (SSW +0.00%) given that the stock lost more than a quarter of its value. That marked its fourth straight down year, having lost about 70% of its value over that time frame. Because of that, and some other factors, the stock now sits more than 80% below its all-time high.
However, while its stock sunk last year, Seaspan's financial results showed signs of finally turning around. That trend appears poised to continue in 2018, which looks like it will be a much better year for the shipping company. But everything would have to go just right for 2018 to be its best yet.
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A long way to the top
While Seaspan's earnings and cash flow have ebbed and flowed over the years, the general direction has been upward. That said, profits peaked on a per-share basis in 2012 while cash flow did the same in 2015.
Data source: Seaspan Corporation. Note: 2017 year-to-date results through the third quarter.
2017's results are on pace to be well below those peaks, which suggests the company has lots of ground to make up for 2018 to be its best yet.
Clawing its way back
However, there's reason to believe that its results will recover at least some of that lost ground this year. First of all, Seaspan will have more ships operating in 2018. It accepted delivery of five vessels last year, including one in the fourth quarter and two in the third and therefore won't experience the full earnings benefit until 2018. Meanwhile, it expects five more vessels to enter service throughout 2018, which should provide some incremental earnings and cash flow this year.
In addition to the visible fleet growth, Seaspan has significant upside from its existing vessels as lower-priced legacy contracts expire in 2018. Overall, the charters on 29 of the company's 110 ships will end this year, including on 24 smaller vessels that it typically signs to short-term contracts and five that have longer-term contracts ending. The company noted on its last quarterly conference call in November that the charters on the smaller ships were $3,500 to $4,400 per day below the forecasted rates for 2018, suggesting it could sign them up to more lucrative contracts this year. In the meantime, the company pointed out that it could secure long-term contracts for its larger vessels that were 50% to 100% above the legacy contracts. If the company can lock up these more lucrative contracts, it would significantly boost earnings, though it won't enjoy the full benefit of the repricing until 2019 given the timing of the contract expirations.
A final catalyst for 2018 is the potential for Seaspan to acquire vessels already under contract, which would provide an immediate boost to earnings. The company noted that it is exploring a range of options, including being given a license from some customers to acquire vessels on their behalf that they would then charter for the long term. If it can make the right vessel acquisitions, it could quickly grow cash flow and help push profits closer to the previous record.
Better but probably not the best yet
From the look of things, 2018 should be a much better year for Seaspan, with earnings and cash flow poised to recover sharply from 2017's low. That said, the company seems to have too much ground to make up for 2018 to be its most profitable year yet. However, that doesn't mean it won't be an excellent year for investors because that recovery could finally end the company's losing streak, with the potential for the stock to stage a significant rebound in 2018 if all its catalysts come to fruition.
