Global Energy Demand Will Empower Eco-Friendly Tanker Fleets

Key Takeaways

• Rising energy demand and tighter tanker supply drive higher fleet utilization, elevated rates, and improved topline growth for International Seaways.
  
• Fleet modernization and strong financial discipline enhance profit margins and enable substantial capital returns to shareholders.
  
• Structural shifts toward renewables, mounting regulations, weak diversification, and rising alternative transport threaten long-term revenue stability and profitability in core oil shipping markets.

Catalysts

Owns and operates a fleet of oceangoing vessels for the transportation of crude oil and petroleum products in the international flag trade.

• Global energy demand is projected to keep rising due to population growth and urbanization, especially in emerging economies, which will directly increase the need for oil and petroleum product transportation and drive higher vessel utilization and spot rates, contributing to sustained revenue growth for International Seaways.
  
• Shifts in global energy supply chains and geopolitical developments are triggering longer-haul tanker trades and greater ton-mile demand, supporting elevated vessel day rates and allowing Seaways to benefit from higher average TCEs and topline revenue expansion.
  
• The company’s commitment to maintaining a modern, fuel-efficient, and increasingly eco-friendly fleet positions it to capture premium charter rates and operate at lower unit costs, driving expansion of net margins and boosting long-term earnings.
  
• Tighter supply fundamentals in the tanker market, with limited new vessel deliveries and increased scrapping of older ships, are creating a favorable supply-demand imbalance that supports stronger asset utilization and sustained high earnings over a multi-year period.
  
• International Seaways’ strong balance sheet, conservative leverage, and ample liquidity provide flexibility to invest in growth opportunities and consistently return significant capital to shareholders through dividends and buybacks, supporting accretive growth in earnings per share.

International Seaways Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on International Seaways compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming International Seaways's revenue will grow by 3.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 37.4% today to 30.6% in 3 years time.
• The bullish analysts expect earnings to reach $294.0 million (and earnings per share of $5.87) by about July 2028, down from $321.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from 5.9x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.74%, as per the Simply Wall St company report.

International Seaways Future Earnings Per Share Growth

Risks

• The accelerating global transition away from oil toward renewables and the widespread adoption of electric vehicles may structurally reduce long-term oil demand and shipping volumes, causing significant declines in International Seaways' future revenues and cash flows.
  
• Increasingly stringent environmental regulations, including potential carbon pricing and requirements arising from IMO 2030 and IMO 2050 targets, will require costly retrofits, scrapping, or newbuilds to replace an aging fleet with eco-efficient vessels, which will increase capital expenditures and pressure company net margins over time.
  
• The company remains highly exposed to crude and product tanker markets, with limited diversification, meaning any sustained downturn in oil shipping demand or a sector-specific slump would directly impair the stability of its revenues and earnings.
  
• Periodic surges in global tanker orderbooks could lead to industry overcapacity, driving down freight rates, reducing vessel utilization, and weighing on International Seaways’ return on assets and long-term profitability.
  
• Development of alternative energy transport infrastructure such as pipelines, LNG carriers, or hydrogen shipping may further reduce demand for traditional oil tanker shipments, limiting future revenue growth opportunities and exposing the company to secular declines in its core markets.

Valuation

• The assumed bullish price target for International Seaways is $70.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of International Seaways's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $41.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $960.1 million, earnings will come to $294.0 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 6.7%.
• Given the current share price of $38.78, the bullish analyst price target of $70.0 is 44.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.