J.P. Morgan raised its price target on Star Bulk Carriers from $18 to $20 per share in mid-September while reiterating its "overweight" rating on the stock, which is the bank's top pick in the sector. Driving the price-target increase was Star Bulk Carriers' decision to install scrubbers, or exhaust gas cleaning systems, on 100% of its fleet by 2020. The bank views this move as "highly bullish" since it will allow the company to meet the deadline of a new sulfur emissions cap on maritime vessels, which will go into effect in January 2020. By having a fully compliant fleet, Star Bulk Carriers should be able to increase its cash flow, which leads J.P. Morgan to believe the net asset value of the company could grow to $25.08 per share by the end of 2021, implying "substantial upside."
Meanwhile, Deutsche Bank is even more bullish on Star Bulk Carriers' future. While the bank reiterated its buy rating and $17 price target, it believes the stock could be worth more than $50 a share in the future due to its move to install scrubbers on all its ships. That's because it can burn lower-cost heavy fuel oil, which will enable it to make more money than if it switched to a higher-cost low-sulfur fuel.
Star Bulk Carriers' decision to install exhaust gas cleaning systems on all its ships could enable it to save a lot of money in the long run. However, while the company could make more money than its peers by going this route, investors need to carefully consider the downside, since shipping stocks like Star Bulk Carriers can be excruciatingly volatile due to how quickly shipping rates can change.