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Why Scorpio Tankers Stock Just Popped 15%

By Rich Smith – Sep 8, 2020 at 1:08PM

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$250 million in buybacks are in the offing.

What happened

Shares of oil transporter Scorpio Tankers (NYSE: STNG) are up a strong 14.9% as of 1:35 p.m. EDT, as investors continue buying. Turns out, though, investors aren't the only ones buying heavily into the company. Scorpio Tankers is doing some buying of its own.

So what

This morning, the Monaco-based oil shipper announced plans to spend $250 million buying back its own debt and debt convertible into shares, which have slipped 62% in price over the past year.

Oil tanker foredeck

Image source: Getty Images.

As management explained, "between July 1, 2020 and today, the Company repurchased $52.3 million face value of its Convertible Notes due 2022 at an average price of $894.12 per $1,000 principal amount, or $46.7 million." This represents an 11% discounted price. Scorpio intends to continue reducing its diluted share count with a new securities repurchase program that will see it continue snapping up discounted convertible notes and senior unsecured debt, as well.

Now what

Scorpio appears to have the cash it needs to make these promises effective. According to the latest data, the company's cash balance contains almost exactly $250 million. While spending it all on buybacks may leave Scorpio somewhat cash poor and debt heavy (it owes $3.1 billion), at least the company is getting good discounts on its buybacks.

That fact alone seems to be encouraging investors today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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