3. Star Bulk Carriers Corp. (NASDAQ:SBLK)
Number of Hedge Fund Holders: 18
Star Bulk Carriers Corp. (NASDAQ:SBLK) was incorporated in 2006 and is based in Marousi, Greece. The company specializes in the ocean transportation of dry bulk cargoes worldwide. On August 4, Star Bulk Carriers Corp. (NASDAQ:SBLK) reported a Q2 non-GAAP EPS of $2.00, beating market estimates by $0.15. The revenue of $417.33 million gained 34% year over year, topping analysts’ predictions by $94.1 million. The company also declared a $1.65 per share quarterly dividend, in line with previous. The dividend is distributable on September 8, to shareholders of record as of August 25. On September 2, Star Bulk Carriers Corp. (NASDAQ:SBLK) delivered a dividend yield of 33.18%.
Jefferies analyst Omar Nokta initiated coverage of Star Bulk Carriers Corp. (NASDAQ:SBLK) on July 20 with a Buy rating and a $30 price target. The analyst assumed coverage of the maritime shipping sector and views companies with modern fleets as positioned competitively to achieve “higher, out-sized earnings going forward”. Star Bulk Carriers Corp. (NASDAQ:SBLK) has become a huge dividend payer given its exposure to rising rates, and its dividends should remain high over the next multiple quarters, the analyst told investors.
Among the hedge funds tracked by Insider Monkey, 18 funds reported owning stakes in Star Bulk Carriers Corp. (NASDAQ:SBLK) at the end of June 2022, compared to 21 funds in the last quarter.
Here is what Massif Capital has to say about Star Bulk Carriers Corp. (NASDAQ:SBLK) in its Q3 2021 investor letter:
“We initiated one long position, one short position and exited one position during the third quarter. Our new long position was in Star Bulk Carriers (SBLK), a pure-play dry bulk operator with roughly 120 controlled vessels and 14 million tons of combined cargo capacity globally.
SBLK has one of the better management teams in the maritime shipping industry and the lowest cost structure among all dry bulk names. After announcing their new dividend policy in May, SBLK now has one of the best payout structures in shipping. The firm has paid out $0.3 and $0.7 per share in dividends for the first and second quarters of 2021. SBLK will most likely announce a dividend for the third quarter somewhere in the $1.15-$1.25 per share range, depending on movement in net working capital.
We believe the best way to look at this business is through cash generation potential and how much is returned to investors. The current equity valuation does not reflect current rates for shipping (earnings), partly because of the velocity of the move in rates and because shipping cycles turn, and it’s not clear whether this is a local top or the early innings of a multi-year cycle. Our belief is the latter. Part of our catalyst is the market re-rating the stock higher once the length of the increased earnings power becomes understood. It is a relatively strong catalyst in the sense that with a strong dividend policy, we can be patient for the market to underwrite this story as the cash is either returned to us via a high dividend yield if the market is either slow or chooses not to join our side of the trade.
Our estimates suggest a time-charter equivalent rate (net profit or loss of operating a vessel daily) of at least $30,000 for SBLK in Q4, with the firm earning a potential annual average of $26,000. Our base case is that this is a strong floor going into next year, with little need to articulate much more upside. If rates hold, which we expect them to do, we could see a 20+% annual dividend next year for SBLK. If the market priced the equity such that the dividend yield was 8%, that implies a $62 stock. Today our base case target for the firm is $37 per share. This is likely conservative as we know that third-quarter rates are higher than the second quarter, and third-quarter dividends will most likely reflect that. We are cautious about diving too deep into the sensitivities to the upside with this position as we are arriving at some pretty remunerative torque using current contracted values and seemingly conservative forecasts…” (Click here to see the full text)
