Teekay Tankers (Buy, TP: USD74.00) - Soon time to prune the discount

We believe Teekay Tankers offers attractive tanker exposure, with limited downside risk, trading at a 45% discount to steel values. We estimate FCFE (including current cash) of USD40/share by end-2026, or 85% of the current share price. Conservatively assuming fleet scrap value at end-2026 implies 10% upside potential to the current share price, increasing to 80% on today’s asset values. We reiterate our BUY, but have trimmed our target price to USD74 (75).

Teekay Tankers (Buy, TP: USD75.00) - Discounted tanker exposure

We see an attractive risk/reward, with scheduled tanker supply growth of just 3% in 2025, and potentially increased demand from the unwinding of cuts (2.2mbbl/day) by OPEC+ from December 2024. As a result, we believe Teekay Tankers offers appealing exposure to the tanker segment, trading at a hefty ~35% discount to steel values, compared with the peer group average of 4%. We reiterate our BUY, but have reduced our target price to USD75 (81).

Teekay Tankers Minor model adjustments

We have updated our estimates owing to the Q2 report, and our model for the reported QTD fixtures for Q3 and the announced sales and acquisition of vessels, among other small adjustments. We still find Teekay Tankers well-positioned to capitalise on the strong mid-size tanker market (one-year TC rates for Suezmax and LR2 ~50% and ~80% above the 10-year average) supported by positive tonne-mile effects from the Red Sea disruptions. Furthermore, with the longevity of the cycle bolstered by limited...

Teekay Tankers (Buy, TP: USD81.00) - Vintage earnings generator

We believe Teekay Tankers is attractively positioned to capitalise on the current solid mid-size tanker freight market, with its vintage fleet (average age 14.7 years) limiting the residual risk beyond the imminent upcycle we expect. Thus, with a meagre 1% fleet growth for the rest of 2024 for product and crude tankers, we see solid earnings for the company and estimate a 20%+ earnings yield for the next four quarters. We reiterate our BUY and have slightly raised our target price to USD81 (80).

Vermilion Compass: Weekly Equity Strategy

New All-Time Highs Validates Our Bullish Outlook We continue to view the latest pullback to the 100-day MA on the S&P 500 as healthy and normal within the ongoing bull market, and our bullish outlook (since early-November 2023) remains intact. Throughout the last week of April, we discussed the possibility that further downside was limited (4/23/24 Compass) and the mounting evidence that led us to believe the lows were likely in for this pullback (4/30/24 Compass). Market dynamics remain health...

Teekay Tankers (Buy, TP: USD80.00) - Solid earnings outlook

The Red Sea disruption has lifted rates far above their 5-year average and fuelled steep asset appreciation, especially for Teekay’s fleet (15-year-old values up c140% versus 5-year-olds up c70% since 2022). Still, the stock is trading at a P/NAV 0.89x versus its 5-year average of c0.65x, supported by what we expect to be substantial cash flow of cUSD4/share (potential 22% yield) on today’s TC rates. Positive demand effects and a still-low orderbook-to-fleet ratio of c10% should continue to supp...

Yard response and dry bulk qualms

Our trip to South Korea and China revealed Chinese shipbuilders are seeking growth to take on Korea’s established yards who are facing constraints. An eagerness to add capacity is one of our takeaways, as well as a gloomy outlook for Chinese real estate, which in our view should inevitably weigh on dry bulk demand.

Vital Signs: Actionable charts

In this product we rank the most positive and negative domestic stocks, filter the symbols by market-cap and trading volume, and then divide the companies into sectors and groups. We then manually look through charts leadership/changes, bottoms-up/top-down ideas, short-term patterns that may have long-term significance, etc. We believe you will find this product valuable as significant price and relative moves begin in the daily charts.

A brewing challenge for the yards

Our 17th Annual Energy & Shipping Conference was well attended by investors and industry executives showcasing the still-growing interest for the sectors. Limited yard capacity is fuelling high newbuilding prices and raising freight rate expectations for the vast fleet renewal necessary in the coming decade. Long lead times underpin a bullish supply story for much of shipping in the coming years, albeit exposed to geopolitical risks affecting trade patterns. Our overall impression was general op...

Teekay Tankers (Buy, TP: USD74.00) - Solid potential on strong markets

Strong mid-size tanker rates have raised vintage Suezmax values, with the 1-year TC approaching USD45k/day, implying annual EBITDA of cUSD13m. The share price reflects a c33% discount to steel values, which on current 1-year TCs prices conventional 15-year Suezmax tonnage at 2.6x EV/EBITDA. Hence, we see solid return potential, with the risk largely offset by the 28% discount to NAV and limited leverage. We reiterate our BUY and have raised our target price to USD74 (73).

Teekay Tankers (Buy, TP: USD73.00) - Mid-sized tankers outperforming

Given the relative outperformance of mid-sized tanker earnings over the past few months, Teekay Tankers screens as ideally positioned among its tanker peers, with Suezmax and Aframax rates at ~USD50k/day and LR2 rates inching towards more than USD100k/day. This compares to its FCF breakeven of ~USD16k/day, illustrating sizeable cash generation at current levels. Hence, risk/reward looks skewed to the upside, with -9% leverage, 0.85x P/NAV, high operational leverage, and lower residual risk beyon...

Vital Signs: Actionable charts

In this product we rank the most positive and negative domestic stocks, filter the symbols by market-cap and trading volume, and then divide the companies into sectors and groups. We then manually look through charts leadership/changes, bottoms-up/top-down ideas, short-term patterns that may have long-term significance, etc. We believe you will find this product valuable as significant price and relative moves begin in the daily charts.

Teekay Tankers (Buy, TP: USD65.00) - Building financial muscle

Mid-sized tankers are reaching peak performance as Suezmax rates hit USD75k/day. At the same time, we find more upside potential to seaborne volumes from latent Saudi/Russian crude barrels, which could see tanker utilisation max out on the back of full shipyards for the foreseeable future and limited orderbook deliveries. This makes Teekay Tankers, with a USD16k/day cash breakeven from near-zero net debt, an FCF generator accruing an impressive ‘war chest’. We reiterate our BUY and have raised o...

Teekay Tankers (Buy, TP: USD58.00) - Good risk on negative leverage

Teekay Tankers’ market-adjusted leverage has inched below zero, offering significant capital flexibility and attractive risk/reward dynamics, in our view. Its 0.65x P/NAV pricing provides discounted exposure to an operationally leveraged name amid a firm market outlook due to the still-strong supply side, resulting in solid earnings capacity. We reiterate our BUY and have raised our target price to USD58 (57).

Teekay Tankers (Buy, TP: USD57.00) - ~50% upside potential to 1.0x NAV

Teekay Tankers is trading at 0.68x its current NAV and 0.62x its 1-year forward NAV at unchanged asset values. This suggests a favourable risk/reward in light of the company’s high operating leverage from its ~14-year old fleet of mid-size tankers (the prime beneficiary of the embargo-driven trade disruptions), and low cash-break-even from zero market-adjusted leverage, during the early innings of what we foresee will be a multi-year upcycle with

Northern Lights

Teekay Tankers (Buy, TP: USD56.20) - Mid-sized tankers defying gravity

We have raised our estimates on persistently strong mid-sized tanker rates, which seem to be defying seasonal gravity, and demand headwinds from incoming OPEC+ cuts, which to us bodes well for the seasonally stronger H2 earnings amid unusually strong supply-side fundamentals. We reiterate our BUY and have raised our target price to USD56.2 (55.7).

OPEC headwinds into low season

Saudi Arabia has added to softening tanker markets with an additional 1mbpd cut until at least July, while voluntary cuts have been extended until end-2024. This means less tanker demand (~2% in aggregate, ~3% for VLCCs) and should weigh on near-term earnings potential for tanker stocks. However, we still find current valuations and the long-term backdrop of limited supply growth and steadily improving oil demand appealing for the outlook into the winter and beyond.

Teekay Tankers Minor model adjustments

We have updated our estimates based on Q1 actuals and QTD fixtures (44% of Suezmax spot days at USD62.4k/day and 41% of Aframax/LR2 spot days at USD58.5k/day). Q1 marked the return of shareholder distributions for Teekay Tankers, with a total DPS of USD1.25 (USD0.25 regular and USD1.0 special) and authorisation of a USD100m buyback programme (~7% of the current market cap) against a P/NAV of 0.73x. We expect further distributions, supported by strong cash generation and a solid balance sheet (6%...

Teekay Tankers (Buy, TP: USD56.10) - Should see first dividends in Q1e

Teekay Tankers (TNK US, Buy) - Should see first dividends in Q1e (19 pages)