Oil Shipper TeeKay Tankers Hits New 52 Week High

Teekay Tankers Ltd. (TNK) is a Marshall Islands corporation recently formed by Teekay Corporation to provide international marine transportation of crude oil. Teekay Tankers Ltd. owns a fleet of nine double-hull Aframax-class oil tankers, which an affiliate of Teekay Corporation manages under a mix of spot-market trading and short- or medium-term fixed-rate time-charter contracts. In addition, Teekay Corporation will offer to Teekay Tankers Ltd. within eighteen months of the initial public offering the opportunity to purchase up to four Suezmax-class oil tankers. Teekay Tankers Ltd. intends to distribute on a quarterly basis all of its cash available for distribution, subject to any reserves established by its board of directors.

TeeKay has been a favorite of several of our newsletter strategies for most of 2015 and subscribers have benefited from the stock's continuing rise. Our VE Small Cap Portfolio included the stock in January and February and then again from April until now (for a 27% gain at teh beginning of the year and a current pick up of 19.7%). Our VE Forecast Market Neutral Portfolio picked the stock for the March, April, and May editions as did our VE View Newsletter. As of yesterday's close, gains for the stock within those portfolios are approaching 40%.

The market has also noticed this stock and pushed it to a new 52-week high yesterday. As we noted when we first discussed this company back in April, Teekay is positioned well within the industry. It focuses on very large crude vessles and "Suezmax" class carriers. The bigger ships are preferred to older ships-- and it can be tough to purchase used ships suitable for the business. This is because with falling or uncertain market conditions, there is a higher demand for onboard storage of crude as speculators wait for more favorable prices.

Conditions remain favorable for crude-oil shipping companies with lots of big tankers--such as TeeKay. The company is highly agile, and can benefit from markets where spot rates are ascendant. Turmoil in the crude oil markets has meant uncertainty and TeeKay benefits as hoarders and speculators seek out temporary storage in the hopes of beneficial price movements. TeeKay has an 85% exposure to spot-market rates over the next twelve months.

Earnings have been high for 2015, with a Q1 year-over-year increase in revenues of 68%.CEO Kevin Mackay noted when they reported last month that "the Company experienced the strongest quarter in six years with free cash flow of $53 million, or $0.46 per share, resulting in an annualized free cash flow yield of 32 percent based on the average share price during the first quarter . . . Over the past four months, crude spot tanker rates have achieved the highest average levels since the strong winter market of 2008."

So, given the current state of the oil market and potential changes in the near future, TeeKay appears to be positioned extremely well for the rest of 2015. Of course, commodities markets are notoriously difficult to predict, and events in the Middle East can have a way of messing up even the most carefully planned trades.

One of TeeKay's Massive Oil Tankers

Nevertheless, at ValuEngine, we continue our STRONG BUY recommendation on TEEKAY TANKERS for 2015-06-01. Based on the information we have gathered and our resulting research, we feel that TEEKAY TANKERS has the probability to OUTPERFORM average market performance for the next year. The company exhibits ATTRACTIVE Momentum and P/E Ratio.

Below is today's data on TNK:

 

VALUATION WATCH: Overvalued stocks now make up 60.3% of our stocks assigned a valuation and 22.45% of those equities are calculated to be overvalued by 20% or more.  ALL sectors are calculated to be overvalued--with six at or near double digits.