Chartering 12 Containerships Will Secure Strong Future Revenue Potential

Key Takeaways

• Costamare's forward charters and fleet upgrades position it for strong revenue growth and operational efficiency improvements.
  
• Adequate liquidity and Neptune Maritime's investment pipeline support potential strategic acquisitions and diversified growth opportunities.
  
• Oversupply risks and market volatility threaten future revenues and margins due to Suez and Red Sea uncertainties, weak dry bulk market, and containership capacity increases.

Catalysts

Owns and operates containerships and dry bulk vessels worldwide.

• The company's recent charters of 12 containerships on a forward basis with contracted revenues of $330 million indicate strong future revenue potential, likely bolstering overall revenue growth moving forward with 96% of revenue days fixed for 2025.
  
• Costamare's strategy to renew and expand its dry bulk fleet with larger, more efficient vessels, such as Capesize and Ultramax, is poised to enhance long-term earnings potential by increasing operational efficiency and potentially capturing higher freight rates.
  
• The strong liquidity position, with $940 million available, provides Costamare with the capacity to pursue strategic acquisitions or investments, offering potential revenue growth and margin improvements through economies of scale and diversified asset portfolios.
  
• Neptune Maritime Leasing’s growth, with a robust pipeline exceeding $500 million in investments and commitments, indicates potential for additional returns and earnings growth through strategic leverage and optimized finance structures.
  
• The company's flexibility in managing its CBI chartered-in fleet, with a strategy of taking selective long or short positions based on market conditions, aims to maintain a balanced risk profile and optimize net margins by capitalizing on favorable market trends.

Costamare Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Costamare's revenue will decrease by 27.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.9% today to 52.2% in 3 years time.
• Analysts expect earnings to reach $409.9 million (and earnings per share of $3.41) by about March 2028, up from $290.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.6x on those 2028 earnings, up from 4.2x today. This future PE is greater than the current PE for the US Shipping industry at 4.3x.
• Analysts expect the number of shares outstanding to grow by 0.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.05%, as per the Simply Wall St company report.

Costamare Future Earnings Per Share Growth

Risks

• The normalization of trade routes through the Suez Canal could eventually lead to an increased supply of tonnage in the containership sector, potentially distorting current supply and demand dynamics and affecting future revenues.
  
• The dry bulk market remains weak with charter rates at low levels due to congestion easing and pressures in the China steel market, which could negatively impact revenue and net margins in the dry bulk segment.
  
• Dependence on the Red Sea crisis for maintaining current charter rates adds uncertainty, as the resolution of the crisis could affect chartering agreements and influence revenues negatively.
  
• The company's reliance on index-linked agreements in the CBI chartered-in fleet introduces volatility, which could impact earnings if market conditions turn unfavorable.
  
• Large new building capacity injections in the containership market, combined with uncertain recovery timelines for trade routes, may lead to oversupply and depressed asset values, impacting revenue and net margins.

Valuation

• The analysts have a consensus price target of $12.5 for Costamare based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $785.4 million, earnings will come to $409.9 million, and it would be trading on a PE ratio of 5.6x, assuming you use a discount rate of 14.1%.
  
• Given the current share price of $10.16, the analyst price target of $12.5 is 18.7% higher.
  
• 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.