Fleet Expansion Will Improve Operations But Oil Market Risks May Affect Future Revenues

Key Takeaways

• Fleet optimization and acquisition of new vessels enhance revenue potential and operational cost efficiency, benefiting margins.
  
• Strong financial flexibility and capital management strategies, including dividends and share buybacks, support earnings growth and shareholder value.
  
• Global conflicts, economic fluctuations, and potential oversupply pose risks to International Seaways' future revenues and earnings.

Catalysts

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

• International Seaways has been actively optimizing its fleet by selling older vessels and acquiring newer ones, positioning itself for better revenue generation and cost efficiency. This should positively impact both revenue and net margins through more efficient operations.
  
• The company has a significant amount of financial flexibility, with over $540 million in undrawn credit, allowing it to pursue strategic growth opportunities and manage capital expenditures without impacting its liquidity, which supports future earnings growth.
  
• The aging global tanker fleet and limited tanker supply suggest that demand for tankers could remain strong, supporting potential increases in earnings through higher Time Charter Equivalent (TCE) rates.
  
• Strategic use of share buybacks and dividends, often exceeding 75% of adjusted earnings, reflects a focus on increasing shareholder value, which can positively affect earnings per share (EPS) as the share count decreases.
  
• Planned tanker market conditions suggest potential benefits from shifts in oil trading patterns, like possible increased demand for non-OPEC crude oil transportation, potentially enhancing tanker demand and revenue.

International Seaways Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming International Seaways's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 50.9% today to 29.9% in 3 years time.
• Analysts expect earnings to reach $331.1 million (and earnings per share of $6.61) by about January 2028, down from $512.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.4x on those 2028 earnings, up from 3.7x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.4x.
• Analysts expect the number of shares outstanding to grow by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.81%, as per the Simply Wall St company report.

International Seaways Future Earnings Per Share Growth

Risks

• Ongoing and threatened global conflicts could impact oil trading patterns and tanker demand, potentially affecting future revenues and earnings.
  
• Fluctuations in world and regional economic activity and oil demand could lead to lower-than-expected revenues and net margins.
  
• Uncertain political, economic, and regulatory developments globally could present risks that impact revenues and earnings.
  
• Increased tanker order book and potential oversupply could pressure TCE rates and revenue growth.
  
• Inventory builds could temporarily lower tanker demand, affecting short-term revenues and earnings.

Valuation

• The analysts have a consensus price target of $65.38 for International Seaways based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $82.0, and the most bearish reporting a price target of just $49.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $331.1 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 7.8%.
• Given the current share price of $38.39, the analyst's price target of $65.38 is 41.3% 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.