We came across a bullish thesis on Danaos Corporation (DAC) on Substack by Inflexio Research. In this article, we will summarize the bulls’ thesis on DAC. Danaos Corporation (DAC)’s share was trading at $84.72 as of Feb 21st. DAC’s trailing P/E was 2.93 according to Yahoo Finance.
A large shipping container vessel with cranes in motion on the open sea.
Danaos Corporation, a Greek shipping company, operates a fleet of 73 containerships and 10 dry bulk vessels. The company generates most of its revenue from long-term fixed-rate charter agreements with major liner companies like Maersk, Hapag-Lloyd, and Zim. Essentially, Danaos does not operate its ships but leases them out, securing predictable cash flows. After going public before the Great Financial Crisis, Danaos spent over a decade deleveraging its balance sheet, positioning itself to capitalize on the recent upcycle in the containership market.
The company took advantage of the pandemic-driven shipping boom and the 2024 Red Sea Crisis to lock in lucrative multi-year contracts. As a result, Danaos is on track to generate over $25 in EPS annually through at least 2025 and 2026, possibly extending into 2027 and 2028. The company’s contracted revenue backlog ensures earnings visibility, with 2026 coverage expected to exceed 90% by mid-2025 and 2027 coverage surpassing 60%. This revenue is locked in at historically high charter rates, further bolstered by management’s strategy of extending contract durations to maintain earnings stability. The Harpex index, which tracks global containership charter rates, recently reached a new all-time high, signaling continued strength in the sector.
Beyond its existing fleet, Danaos is expanding by ordering new vessels, all of which have been contracted for an average term of five years. This effectively bridges earnings visibility well into 2032. Even if charter rates decline once the current contracts roll off, Danaos will still be adding 27% more capacity at attractive rates. Conservative estimates suggest that even if daily charter rates revert to 2019 levels, Danaos can still generate over $17 per share in earnings from 2027 to 2032. Historical context supports this assumption—containership charter rates remained above $20,000 per day even during the worst industry downturns of the past decade, and Danaos’ average vessel size has increased to over 6,000 TEUs, enhancing revenue potential.
Danaos’ balance sheet is particularly compelling. The company has over $3.4 billion in contracted backlog with a 70% EBITDA margin, translating to $2.38 billion in value. The company’s market cap sits at just $1.59 billion, with an enterprise value of $1.82 billion. This means that the backlog alone more than covers the current enterprise value, effectively allowing investors to acquire Danaos’ fleet and all future earnings for free. Historically, counterparty risk has been the main concern for Danaos, as past liner bankruptcies forced contract renegotiations. However, today’s liner companies are flush with cash, significantly mitigating this risk.
Additionally, Danaos recently expanded into dry bulk shipping, opportunistically acquiring 10 bulk vessels at cyclical lows. Management remains open to further asset acquisitions should market conditions remain favorable. Despite an average fleet age of 15 years, Danaos’ larger vessels are closer to 10 years old, ensuring minimal replacement capex for at least the next five to seven years.
Investors often worry that Greek shipping companies destroy shareholder value, but Danaos’ management has taken the opposite approach. The company has consistently increased dividends, executed significant share buybacks, and remains disciplined in capital allocation. In Q4 2024 alone, Danaos repurchased $48 million worth of stock, followed by an additional $15.7 million in early 2025. These repurchases are highly accretive, as the stock trades at just 0.46x book value, with book value per share exceeding $180. Management’s commitment to returning capital to shareholders is evident, with buybacks reducing the share count by 4% in less than four months.
CEO John Coustas, who owns 48% of the company, has strong incentives to unlock value. With the stock trading at a deep discount to book value and a growing backlog supporting multi-year earnings visibility, a potential sale of the company cannot be ruled out. Coustas, now 68 years old, may be considering estate planning, increasing the likelihood of strategic initiatives to maximize shareholder value.
Danaos presents a rare investment opportunity: a 30%+ free cash flow yield, a stock trading at just 3x EPS, and nearly a decade of earnings visibility. With book value per share growing by $6.75 per quarter and backlog expansion continuing, the company is undervalued by almost any metric. A conservative estimate assuming continued EPS of $27 for the next three years suggests that even with the persistent P/BV discount at 0.5x, the stock should reach at least $131. If the market recognizes Danaos’ earnings sustainability, a valuation of 7-10x normalized EPS—alongside the $80+ in earnings generated over the next three years—could justify a price of $200+ per share, significantly higher than its current $83.97.
Risks remain, particularly in the form of a rising containership orderbook, with the orderbook-to-existing fleet ratio now at 27.5%. However, Danaos’ long-term charter coverage shields it from near-term rate volatility. Ultimately, Danaos offers a highly asymmetric risk/reward profile, with strong free cash flow generation, a disciplined management team, and multiple paths to significant upside.
Danaos Corporation (DAC) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held DAC at the end of the third quarter which was 12 in the previous quarter. While we acknowledge the risk and potential of DAC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.