Teekay Tankers still not a buy at $5.97 (-44% since April 2011).

The yield back then was reported as 11.59%, but I knew that Google Finance didn’t calculate the dividend yield correctly because of the recent dividend cut.  I estimated the dividend yield at 8.2% which still a high dividend stock.  It was trading at over 24 time its two year average earnings.  I usually use at least five years average earnings, but the tanker market has fundamentally changed for the worse in the past three years.

There is an enormous supply glut of oil tankers which have a depressing effect on tanker rental prices.  We will not see the high rental prices of 2008 in the distant future, so I’m throwing out the effects of the years 2006-2008.

Based in the Bahamas but incorporated in the Marshall Islands, Teekay Tankers owns and operates 11 medium-size oil tanker vessels. Previously a part of Teekay Corporation, TNK went public in December 2007. Although it’s not a true limited partnership, Teekay Corporation retains a controlling interest in its spun-out subsidiary, and TNK intends to pay out nearly all of its distributable cash flow to shareholders.

Teekay Tankers (TNK)

Market price $5.97

Market cap: $369 million

Shares outstanding: 61.88 million

Image003

Dividend Record: In one word – volatile.

Dividend: $0.21 quarterly, but TNK hasn’t paid the same quarterly dividend twice in the last five years.  Who knows what it will be next quarter?

Dividend yield: 14% ($0.84 annual dividend/$5.97 stock price)

Dividend payout ratio: 386% WARNING ($1.12 dividends last 12 months/$0.29 EPS last 12 months)  The dividends are being paid for by the issuance of new stock shares.  There will be either a massive dividend cut or another drop in the price of the stock as they issue more shares to finance the dividend.

Earning Power:  TNK has an average adjusted earning power of $0.38 EPS @ 61.88 million shares since 2009.

Teekay has more than double the number of outstanding shares in 2010 and it keeps issuing stock.  This highlights the importance of adjusting reported EPS for changes in capitalization.

 

EPS                Net inc.          Adj. EPS        Shares

2006               $2.68              $40.153 M     $0.64              –

2007               $2.76              $40.551 M     $0.66              13.384 M

2008               $2.03              $58.067 M     $0.94              25.000 M

2009               $1.28              $38.934 M     $0.63              28.644 M

2010               $0.37              $14.662 M     $0.24              42.330 M

2011Q1          $0.12             $7.09 M          $0.11              57.39 M

2011Q2          $0.02              $1.44 M          $0.02              61.88 M

Consider a value buy at or below $3.01 per share (8 times average adj. earning since 2009)

Consider an investment buy at or below $4.51 per share (12 times average adj. earnings since 2009)

Consider selling as it becomes speculatively priced at or above $7.52 per share (20 times average adj. earnings since 2009)

Balance Sheet: up mostly due to the issuance of shares of stock

Image007

Book value per share: $9.88

Price to book value: 0.60 (very good)

Current ratio: 1.78 (over 2.0 is good)

Quick ratio: 1.62 (over 1.0 is good)

Financial leverage: 1.73 is low.  This is good

Debt to equity ratio: 0.66 is also good

Conclusion: Wait for a massive dividend cut or a massive price drop down to the $4.51 – $3.01 range.  Then monitor the technicals to spot near the bottom.

Disclosure: I don’t own Teekay Tankers.

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Published in: on September 20, 2011 at 1:23 pm  Leave a Comment  

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