What happened

Shares of ocean-going, oil-carrying transport operator Frontline (NYSE:FRO) tumbled in Wednesday trading, falling 9.5% through 1:15 p.m. EST after the company reported disappointing earnings in its third-quarter 2020 financial report late last night.  

Analysts had forecast that Frontline would earn $0.32 per share on sales of $184.4 million. In fact, earnings came in 10% shy of that mark at $0.29 per share, despite total operating revenue being $247.4 million.  

Cartoon man in a suit crushed under a kettlebell reading DEBT

Image source: Getty Images.

So what

Was this really "bad" news though? After all, compared to last year's Q3, Frontline increased its revenue 32% while decreasing its operating expenses 2%. Operating income at the company nearly sextupled year over year to $71 million. Frontline may not have earned quite as much on the bottom line as analysts had forecast, but it did at least earn the $0.29 -- which was a whole lot better than last year's $0.06 per share Q3 loss.

That's hardly bad work for an oil shipper operating in the middle of a pandemic that has crushed demand for oil worldwide.

Frontline even managed to put away some cash in the quarter, generating positive free cash flow of $103 million (which was more than its reported net income, I might add), up more than 10 times from the less than $10 million in FCF generated a year ago.

Now what

If there's one thing about Frontline that worries me -- one thing keeping me away from investing in a stock that, at last report, was trading for less than three times trailing earnings and looks, at first glance, to be an incredible bargain -- it's the debt.

Frontline's debt load is simply staggering -- $1.9 billion versus barely one-tenth that amount in cash -- and its debt load has grown nearly 55% since the end of last year. If I could make just one suggestion to Frontline at this point, therefore, it would be this: Take some of that free cash you generated in Q3 and use it to pay off some debt.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.