What happened
Star Bulk Carriers (SBLK 0.33%) stock is riding high Thursday, up a lucky 7.7% as of 11:20 a.m. EDT. And with the rest of the dry bulk shipping sector only modestly higher or lower, it looks like Star Bulk investors have just one thing to thank for today's gains:
A price target hike from Deutsche Bank.
Image source: Getty Images.
So what
TheFly.com has the details. Even with Star Bulk stock up nearly 170% over the past year, Deutsche Bank sees "plenty of upside left." Management at Star Bulk is "prudent," opines the analyst, and careful about how it allocates capital to create value for shareholders, buying smaller shippers, and consolidating them into itself, only when it has a reasonable chance of growing its profits by doing so.
Of course, it doesn't hurt that Star Bulk is operating in an environment very favorable to dry bulk shippers right now. Since the beginning of this year, the Baltic Dry Index (BDI), which tracks the average cost of shipping bulk cargo from place to place (and thus predicts the profits of dry bulk shipping stocks), has risen from 1,370 to a closing valuation of 2,105 yesterday -- a gain of 54% in less than three months' time.
Now what
Granted, the gains in Star Bulk stock have been even greater -- up 88% year to date. On the one hand, investors may worry that this means the market is getting ahead of itself and valuing Star Bulk stock more highly than the index's gains warrant. When you consider, though, how expensive a business shipping is (you need to spend money and buy the ships before you can even begin collecting any revenues to offset that cost), it makes sense that any incremental improvement in prices -- such as the BDI's gains reflect -- would result in outsize improvements to company profits. Past a certain point, every extra dollar of revenue should begin falling almost directly to the bottom line.
That's what we're seeing reflected in the gains in Star Bulk stock today: better prospects for supersize profits in the future.
