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Why Seaspan Stock Rallied 10% in April

By Matthew DiLallo - Updated May 6, 2019 at 8:53AM

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The containership leasing company is taking steps to diversify.

What happened

Shares of Seaspan (ATCO 0.98%) jumped 10.2% in April, according to data provided by S&P Global Market Intelligence. Buoying the containership leasing company's stock was optimism about its potential move into the fast-growing LNG market as well as hope that it would report good first-quarter results, which it did in early May.

So what

One of Seaspan's five key priorities has been to pursue new growth opportunities. The company took a notable step in that direction in April by signing a framework agreement for strategic cooperation with COSCO Shipping Energy Transportation Company, which has the largest LNG fleet in China.

The two companies agreed to collaborate on LNG investment opportunities, including LNG and ethane transportation. LNG is becoming increasingly important in fueling the global economy. That leads analysts to believe that the global LNG market will expand at a 6% compound annual growth rate through 2025 as countries like China demand more cleaner-burning natural gas to offset their consumption of coal. That will likely drive the need for additional LNG carriers to move it from export terminals to market centers, potentially opening the door for Seaspan to capture this growth.

An LNG tanker leaving a port terminal.

Image source: Getty Images.

Another driver of Seaspan's rally last month was growing optimism that the company would report good first-quarter results. The company did just that in early May as it hauled in $1.26 per share of earnings, which came in well ahead of the analysts' consensus of $0.17 per share. However, that was due entirely to a $227 million one-time payment from a customer to modify the charters on seven vessels so that they ended during the quarter.

While Seaspan immediately rechartered those vessels to other customers, it's reducing its full-year revenue guidance by $40 million to account for the change in lease rates.

Now what

Seaspan spent much of the past year working on several strategic initiatives to strengthen its balance sheet. That has now given it the flexibility to pursue growth opportunities. One area where it sees potential is LNG, which is why the agreement with COSCO is worth watching. The partnership could be a meaningful growth driver for the company.

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