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DAC

Danaos NYSE:DAC Stock Report

Last Price

US$57.36

Market Cap

US$1.2b

7D

-10.1%

1Y

-27.1%

Updated

24 Sep, 2022

Data

Company Financials +
DAC fundamental analysis
Snowflake Score
Valuation5/6
Future Growth0/6
Past Performance3/6
Financial Health5/6
Dividends4/6

DAC Stock Overview

Danaos Corporation, together with its subsidiaries, owns and operates containerships in Australia, Asia, Europe, and the United States.

Danaos Corporation Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Danaos
Historical stock prices
Current Share PriceUS$57.36
52 Week HighUS$107.47
52 Week LowUS$55.57
Beta1.55
1 Month Change-16.47%
3 Month Change-7.51%
1 Year Change-27.09%
3 Year Change599.51%
5 Year Change192.65%
Change since IPO-80.35%

Recent News & Updates

Sep 12
At US$70.02, Is Danaos Corporation (NYSE:DAC) Worth Looking At Closely?

At US$70.02, Is Danaos Corporation (NYSE:DAC) Worth Looking At Closely?

While Danaos Corporation ( NYSE:DAC ) might not be the most widely known stock at the moment, it led the NYSE gainers...

Sep 05

Danaos: Stock Is Cheap, But Where Are The Buybacks? Ask Management

Summary Everyone loves ZIM Integrated, but what about its lessor, Danaos? Danaos trades at just 2x earnings and net debt is rapidly heading towards 0. The company has high visibility in forward cash contracted revenues. With the stock trading at just 9x pre-pandemic earnings, shareholders need to wonder why management is not being more aggressive with share repurchases. The answer has to do with the external management structure. Danaos (DAC) is a shipping stock that was a huge beneficiary of the pandemic, as the stock is up over 20x since pandemic lows and 6x from pre-pandemic levels. Yet there may be more upside to be had here - while investors might typically shy away from such hyperbolic stock price moves, the past few years have led to a dramatic transformation in the company's balance sheet and consequently, its capital allocation policies. The net debt position is coming close to zero, increasing shareholder hopes for large dividends and share repurchases. There however remains some uncertainty with regards to what management will choose to do moving forward which is arguably due to the structure of the management contract. DAC Stock Price DAC traded around $9 per share before the pandemic and crashed below $3 per share during the pandemic crash. The stock is a tad higher now. DAC data by YCharts While DAC is down 37% from highs reached earlier this year, the stock is still over 20x higher than pandemic lows. It may be uncomfortable to chase the stock after such a performance but we should focus on the fundamentals instead of the tape. What is Danaos? DAC has long been a leader in the container shipping industry with one of the larger fleets (by TEU) globally. 2022 Company Presentation DAC had 71 containerships as of the end of the quarter spread across a variety of sizes. 2022 Company Presentation Readers might be more familiar with ZIM Integrated (ZIM), a shipping stock which has paid nearly 200% of its IPO price in dividends since 2021. What's the difference between ZIM and DAC? ZIM charters its containerships from DAC - this means that DAC owns the containerships and leases it out to ZIM. ZIM pays DAC contracted rates but can earn unlimited upside based on spot market prices. In return for the lower upside, DAC's cash flows are more stable and can be somewhat compared with that of landlords. DAC is kind of like a "shipping landlord." That said, one must note that the comparison is not totally accurate. DAC outlines their relationships in its 20-F filing as follows: Under our time charters, the charterer pays voyage expenses such as port, canal and fuel costs, other than brokerage and address commissions paid by us, and we pay for vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs. We are also responsible for each vessel's intermediate and special survey costs. That leads to substantial operating expenses for the company in the form of crew costs and maintenance costs (retail landlords do not typically pay for the employees in retail stores). Still though, the stability in its cash flows may make it a potentially less risky investment idea in the shipping universe. DAC Stock Key Metrics The latest quarter saw DAC show strong growth, with revenues growing 71% to $250.9 million and adjusted net income growing 128% to $157.1 million. 2022 Company Presentation I note that equity-based compensation made up only 2% of adjusted net income with the bulk of the adjustments being related to non-cash fluctuations in its investment portfolio. Similarly with ZIM, DAC's financials have been greatly boosted by the tight market. DAC was able to achieve an average gross daily charter rate of $38,885 in the second quarter - higher than $27,057 in 2021, $23,175 in 2020, and $22,586 in 2019. 2022 Q2 Press Release This is a company that has not traditionally rewarded shareholders with dividends or share repurchases. Yet in the latest quarter, DAC purchased $25.1 million in shares. The company also paid out $51.7 million in dividends over the past 12 months, but that pales in comparison with the $438 million spent on acquiring new vessels (more on this later). 2022 Company Presentation DAC has seen its leverage ratio decline dramatically over the past few years, largely due to its strong earnings profile. Leverage stood at 7.3x debt to EBITDA in 2017 but stood at only 0.9x debt to EBITDA as of the latest quarter. 2022 Company Presentation DAC had $966.2 million of debt (inclusive of leaseback obligations) versus $332.6 million of cash and 5.69 million shares of ZIM Integrated. Based on recent prices, that equity stake in ZIM was worth around $193 million. DAC has been gradually selling off its stake in ZIM - it originally had 10.2 million shares when ZIM completed its initial public offering in 2021. Assuming it eventually liquidates its stake in ZIM to pay off debt, net debt would stand at around only $440.6 million. DAC's debt outstanding has staggered maturities until 2025, when it faces its greatest maturing amount at $342.4 million. 2022 Company Presentation Is DAC Stock A Buy, Sell, or Hold? Why has DAC stock fallen in recent months? It likely has to do with commentary across the shipping sector implying a peak in market rates. Just check out what management had to say on the conference call: A confluence of factors, including high energy prices, inflation, and the effects of the war in Ukraine, will likely result in slowing economic growth and negatively impact trade volumes. On the other hand, persistent inefficiencies on the shore side of the supply chain and Covid resurgence in China are keeping the vessel utilization high with increased waiting times in port. Additionally, the increase in fuel cost will likely prompt liner companies to reduce vessel sailing speeds as soon as vessels are available, however we do not expect this to happen until the 2nd quarter of 2023 and onwards. Environmental regulations, particularly the CII compliance, is leading liner companies to redesign their operating loops with lower speeds to ensure that they do not breach requirements and to also assure their customers that they are actively reducing CO2 emissions. These mitigating factors point to a weakening, rather than a collapse, of the market that we expect will result in rates much higher than pre-pandemic levels. For the time being charter rates are holding firm as the available tonnage is very scarce. Management teams in the sector seem confident that any decline will prove gradual, but Wall Street seems less certain. That led to ZIM stock declining over 60% from all-time highs. For ZIM, that decline somewhat makes sense because collapsing freight rates could crush its earnings power. Yet for DAC, its role as a lessor may lead to more resilient fundamentals. Just check out consensus estimates - revenues are actually expected to grow mildly over the next few years. Seeking Alpha Earnings are also expected to remain resilient. Seeking Alpha Why is that the case? For starters, DAC discloses that it has already secured 80% cash contracted revenues for 2023 with many charters not expiring until 2028. 2022 Company Presentation Another thing to consider is that DAC was profitable even before the pandemic when charter rates were much lower. 2022 Company Presentation That brings us to an important observation. While DAC stock is up over 200% since 2019, its enterprise value is actually lower. DAC data by YCharts That is because over the same time frame, DAC has aggressively brought its net leverage position lower. 2022 Company Presentation The fact that the enterprise value remained stable is actually surprising - with debt so high previously, it made sense for the stock to trade so low, as there was constant risk of bankruptcy. But now, with debt so low and high visibility in forward charter contracts, bankruptcy risk is a thing of the past. Investors in theory can now focus on profits instead of worrying about bankruptcy. At recent prices, DAC is trading at 2x earnings. Even if we assume that earnings drop all the way to pre-pandemic levels, the stock still trades at just 9x earnings. I expect earnings to be somewhere in between for many years as it will take some time for new ships to become available in the market. Given that the company's leverage position is conservative and the stock is so cheap, why isn't the company being more aggressive in its shareholder return policies?

Aug 22

Danaos: It's Coming Down Again, Buy This Dip Confidently

Danaos reported a solid Q2 earnings release even as freight rates normalized. The market had also anticipated a solid card as it recovered remarkably pre-earnings. We posit that DAC has likely bottomed out in the medium term in July. Therefore, we are confident that the market has de-risked the normalization in Danaos' forward growth rates. Notwithstanding, we don't consider DAC as significantly undervalued. Therefore, investors can consider biding their time if they prefer a more attractive entry level. Still, we are confident that DAC's July bottom should hold. As such, we rate DAC as a Buy. Thesis Danaos Corporation's (DAC) Q2 earnings demonstrated the resilience of its operating model, as it reported robust results despite the normalization in freight rates. We noted that Danaos' average gross daily charter rates improved from Q1, as vessel utilization was close to 100%. Therefore, the company has managed to perform admirably even though DAC fell close to 50% from its March highs to its July lows. Given the robust bottoming process seen in DAC in July, we are confident it has likely bottomed out in the medium term. The market had also anticipated a solid Q2 release, as it recovered remarkably pre-earnings. However, the momentum has stalled somewhat post-earnings, digesting some of its recent gains. We postulate that DAC's valuation is pretty well-balanced. Therefore, we don't consider it attractively undervalued. Notwithstanding, we are confident that the company should be able to confidently navigate the oncoming macro headwinds robustly, given the resilience of its charter rates moving ahead. Accordingly, we rate DAC as a Buy for now. Danaos' Q2 Was Remarkable Danaos average gross daily charter rate change % (Company filings) Danaos registered an average gross daily charter rate of $38.89K in Q2, up 43.7% YoY. Notably, the growth in its charter rate has continued to moderate, albeit still robust. Furthermore, it also increased by 7.13% QoQ, corroborating the strength of its operating model. In addition, management also highlighted that its backlog is filled to the brim through H2'22, as CFO Evangelos Chatzis accentuated: As of the end of the second quarter, our contracted cash revenue backlog stood at $2.3 billion, with a 3.6-year average charter duration while contract coverage is at 99% for 2022 and 80% for 2023, while even 2024 is already contracted at 55%. (Danaos FQ2'22 earnings call) However, management reminded investors that macro headwinds could intensify in the near term, impacting freight rates. However, the ongoing supply chain disruption should keep rates at much higher levels than pre-COVID days, lending tremendous revenue visibility moving forward. Furthermore, the company also highlighted that it remains highly disciplined in its investment plans as costs have surged significantly. Management articulated that it remains confident that the industry is in pretty good shape now, despite the potential of rates normalization ahead. CEO John Coustas highlighted: The long-term rates in the market are dictated by a combination of the actual newbuilding costs and the financing costs. These 2 are really very much in the high side. Because the owners are not in distress, they are not prepared really to, let's say, to put their [ pens ] down as they did the changes in the past in order just to get fixed at any rate. That's why no one will go and build ships today, if they are not really compensated. (Danaos earnings) Investors Should Expect Normalization In Growth Danaos revenue change % and adjusted EBITDA change % consensus estimates (S&P Cap IQ) The consensus estimates (bullish) suggest that Danaos' revenue and adjusted EBITDA growth should moderate markedly through FY23. We believe normalization assumption is reasonable, as management also alluded to the possibility in the earnings call. Furthermore, freight rates have also moderated markedly since their highs in 2021. Therefore, we postulate that the battering in DAC over the past four to five months is justified, as the market de-risked the slower growth expectations in Danaos moving forward. The critical question is whether the de-rating has been completed. DAC's Valuation Is More Reasonable Now DAC TTM P/FCF valuation trend (koyfin) As seen above, DAC's TTM P/FCF has moderated markedly below its 5Y mean. Therefore, we postulate that the froth from its March 2022 highs has likely been digested.

Aug 21
Danaos (NYSE:DAC) Will Be Hoping To Turn Its Returns On Capital Around

Danaos (NYSE:DAC) Will Be Hoping To Turn Its Returns On Capital Around

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common...

Shareholder Returns

DACUS ShippingUS Market
7D-10.1%-8.8%-5.2%
1Y-27.1%-29.2%-23.1%

Return vs Industry: DAC exceeded the US Shipping industry which returned -29.2% over the past year.

Return vs Market: DAC underperformed the US Market which returned -23.1% over the past year.

Price Volatility

Is DAC's price volatile compared to industry and market?
DAC volatility
DAC Average Weekly Movement6.6%
Shipping Industry Average Movement7.6%
Market Average Movement6.9%
10% most volatile stocks in US Market15.9%
10% least volatile stocks in US Market2.8%

Stable Share Price: DAC is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 7% a week.

Volatility Over Time: DAC's weekly volatility (7%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
19634John Coustashttps://www.danaos.com

Danaos Corporation, together with its subsidiaries, owns and operates containerships in Australia, Asia, Europe, and the United States. The company offers seaborne transportation services, such as chartering its vessels to liner companies. As of February 28, 2022, it had a fleet of 71 containerships aggregating 436,589 twenty-foot equivalent units in capacity.

Danaos Corporation Fundamentals Summary

How do Danaos's earnings and revenue compare to its market cap?
DAC fundamental statistics
Market CapUS$1.18b
Earnings (TTM)US$722.91m
Revenue (TTM)US$891.78m

1.6x

P/E Ratio

1.3x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
DAC income statement (TTM)
RevenueUS$891.78m
Cost of RevenueUS$194.41m
Gross ProfitUS$697.37m
Other Expenses-US$25.54m
EarningsUS$722.91m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)35.20
Gross Margin78.20%
Net Profit Margin81.06%
Debt/Equity Ratio36.7%

How did DAC perform over the long term?

See historical performance and comparison

Dividends

5.2%

Current Dividend Yield

8%

Payout Ratio