Like a life raft with dwindling provisions, DryShips (Nasdaq: DRYS) continues to offer little comfort to her crew of faithful shareholders.
Since I first expressed concern about DryShips' debt burden back in 2008, these shares have shed nearly half their value amid a rabbit-like multiplication of the share count. In the 11 months since I sounded the abandon-ship alarm, the stock has dropped 7%. While I'm anything but bullish on the broader equity markets, it's important to note that a basic equity ETF like the iShares S&P 500 Index (NYSE: IVV) returned 38% over the same period.
Adjusting for the laundry list of (not-so) special items, including forfeited vessel deposits, derivative losses, deferred revenues, and amortization of stock-based compensation, DryShips earned $0.23 per share in the fourth quarter. Unfortunately,a $0.01 per-share loss on the quarter and a full-year 2009 loss of $0.19 per share still stare back at beleaguered shareholders from the bottom line.
Meanwhile, a cursory comparison between the balance sheets of DryShips and Diana Shipping (NYSE: DSX) highlights the degree of impairment still cooked into DryShips, despite a marginally improved operational outlook. Whereas my top pick in dry bulk carries a debt-to-shareholder-equity ratio of 0.28, DryShips' combined burden of $2.69 billion in current and long-term debt yields a corresponding ratio of 0.96.
In a recent interview with fellow Fool Jennifer Schonberger, DryShips COO Pankaj Khanna suggested that shares were undervalued, since they equated more or less to the net asset value of the dry bulk business segment alone. Fools are once again reminded that this debt burden forms the principle justification for such a "discount". Pondering the potential for significant hardship forthcoming in the dry bulk sector, as forecast by Diana Shipping, I submit that DryShips remains ill-equipped to weather the storm in a manner likely to generate shareholder gains relative to less debt-impaired contenders. For the record, I retain parallel concerns for all debt-laden shippers; including: Excel Maritime Carriers (NYSE: EXM) and Eagle Bulk Shipping (Nasdaq: EGLE).
DryShips again offered no specific timeline for the long-anticipated spinoff of the drillships segment, revealing only that this will occur "at some stage this year". Here again, I continue to urge Fools eager to invest in drillships to consider more established operators like Transcocean (NYSE: RIG) or Diamond Offshore Drilling (NYSE: DO). Transocean tumbled into a more attractive range this week after an earnings miss, and neither of these operators carries DryShip's baggage of a proven tendency to erode shareholder equity at every turn.
In short, I still have my reasons for considering DryShips one of the world's scariest stocks, and I reiterate my plea for Fools to steer clear of this drifting wreck.
