Tanker Stocks In Focus At Morgan Stanley

It has been rough sailing for tanker stocks in the past couple of years, but several tanker stocks may finally get back on course in 2018.

The Analyst

Morgan Stanley analyst Fotis Giannakoulis on Monday upgraded the following three tanker stocks:

• Euronav NV Ordinary Shares (NYSE: EURN) from Equal-Weight to Overweight, price target $10.
• Teekay Offshore Partners L.P. (NYSE: TOO) from Underweight to Equal-Weight, price target raised from $1.50 to $2.50.
• Navigator Holdings Ltd (NYSE: NVGS) from Underweight to Equal-Weight, price target raised from $8.00 to $12.50.

The Thesis

According to Giannakoulis, tanker market fundamentals are finally starting to show signs of life, and Morgan Stanley has become more constructive on the space. The firm predicts an upswing in the cyclical tanker business in 2019 and 2020 driven by several factors:

• 1. Ramp-up of OPEC production.
• 2. Rise of U.S. exports.
• 3. Greater trading activity as the oil market switches from backwardation to contango.
• 4. Decelerating fleet supply growth due to aging global fleet.

Giannakoulis said Euronav is a top pick among crude tanker stocks due to its gigantic VLCC fleet, its unmatched liquidity and its recent acquisition of Gener8.

Giannakoulis said freight rates for LPG and petchem gases will tick higher over the next three years as the U.S. begins to increase its exports. Morgan Stanley expects improvement in the second half of 2018 as long as oil prices remain relatively stable.

Giannakoulis said improvements in the oil market and recent offerings have shifted the focus away from Tekay Group’s liquidity and back onto its market valuation and dividend.

“The LNG shipping markethas significantly improved on the back of the rapid global supply expansion and strong Asian demand, creating a more favorable sentiment for all LNG shipping stocks,” Giannakoulis wrote.

Price Action

Following the upgrades, Navigator Holdings traded higher by 5.8 percent, Euronav traded higher by 7.7 percent and Teekay Offshore traded higher by 10.2 percent on Monday.

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