Dry Bulk Shipping Stocks: Time to Buy? DSX, NM, EXM

Winland Ocean Shipping (OTC: WLOL) recently trumpeted a research report from Deutsche Bank Hong Kong which predicted that the shipping industry is bottoming out, meaning it might be time to take a look at dry bulk shipping stocks like Diana Shipping (NYSE: DSX), Navios Maritime Holdings (NYSE: NM) and Excel Maritime Carriers (NYSE: EXM) that have low P/E ratios – namely because they have actually managed to produce net income in a very tough operating environment for shipping (see my other article: Dry Bulk Shipping Stocks: Time to Buy? SBLK, SB, GNK). And while I cannot find a copy of the actual research report, Winland Ocean Shipping (WLOL) has issued a press release stating that the report pointed out that the shipping sector is still deteriorating at a faster pace than expected. And while this adds risk in the near term, Deutsche Bank believes its also a positive for the medium term as it will force shippers to become more disciplined due to negative cash flow. Moreover, Deutsche Bank expects that as new build tapers off and demand increases, the shipping sector will bottom out during the first quarter of 2012. Hence, is now the time to position yourself in dry bulk shipping stocks like Diana Shipping (DSX), Navios Maritime Holdings (NM) and Excel Maritime Carriers (EXM)? Here is a closer look at all three to help you decide:

Diana Shipping (NYSE: DSX)

Greece based Diana Shipping specialize in transporting dry bulk cargoes, including such commodities as iron ore, coal, grain and other materials along worldwide shipping routes. Investors should note that Diana Shipping’s 3Q2011 revenue fell 10% year-over-year from $71.6 million to $64.6 million while net income fell 22% from $33.8 million to $26.4 million – results that beat expectations. Diana Shipping noted that revenue fell because of lower rates paid by those who chartered the company’s vessels but these lower rates were partially offset by revenue related to new vessels Alcmene and Arethusa. Diana Shipping has also authorized a new share repurchase program for up to $100 million in shares (DSX has about 23 million shares outstanding) until December 31, 2012. On Tuesday, Diana Shipping rose 0.50% to $8.07 (DSX has a 52 week trading range of $6.59 to $13.21 a share) for a market cap of $186 million. Diana Shipping has no indicated dividend.

Navios Maritime Holdings (NYSE: NM)

Greece based Navios Maritime Holdings is a global, vertically integrated seaborne shipping and logistics company focused on the transport and transshipment of dry bulk commodities, including iron ore, coal and grain. Investors should note that Navios Maritime Holdings 3Q2011 revenue rose 7.2% year-over-year from $162.1 million to $173.8 million while net income fell from $18.7 million to $16.3 million. Navios Maritime Holdings indicated that its net income fell due to higher financing costs, amortization costs and compensation expenses that was partly offset by higher EBITDA and lower income taxes. On Tuesday, Navios Maritime Holdings fell 3.17% to $3.66 (NM has a 52 week trading range of $2.88 to $5.99 a share) for a market cap of $372 million. Navios Maritime Holdings also pays a $0.24 dividend for a 6% dividend yield.

Excel Maritime Carriers (NYSE: EXM)

Greece based Excel Maritime Carriers is a provider of worldwide sea borne transportation services for dry bulk cargo, including among others, iron ore, coal and grain, referred to as major bulks, and steel products, fertilizers, cement, bauxite, sugar and scrap metal, referred to as minor bulks. Investors should be aware that for 3Q2011, Excel Maritime Carriers reported that revenues fell 21.4% year-over-year from $104.7 million to $82.3 million along with a net loss of $26.8 million verses a net profit of $48.0 million. Nevertheless, Excel Maritime Carriers’ CFO noted that the company had positive operating free cash flow generation while results were impacted by weaker market environment as daily charter rates and vessel values were hit by the deliveries of newbuilds (which had peaked earlier in 2011). Excel Maritime Carriers has also negotiated and agreed with its lenders for a relaxation of its financial covenants and now has a liquidity buffer of $134 million. Nevertheless, Excel Maritime Carriers’ CFO remains positive on the longer-term outlook for the emerging markets the company predominantly serves. On Tuesday, Excel Maritime Carriers fell 4.35% to $1.84 (EXM has a 52 week trading range of $1.63 to $6.08 a share) for a market cap of around $150 million. Excel Maritime Carriers has no indicated dividend.

The Bottom Line. For me, Navios Maritime Holdings (NM) is attractive due to its dividend while Diana Shipping (DSX) should at least warrant a closer look but Excel Maritime Carriers (EXM) might be too risky for now.