Many of the shipping stocks have been recovering in 2012 while the index for the pricing basis (chart at end) has been weak.  Some shipping companies pay out more than they earn and some keep making dividend payments when they are losing money. What we really want to know is if these dividends are sustainable.  There have been some pressures that recently forced one shipper to suspend dividend payments. We have glanced at the following shipping players with recent earnings and/or dividend news: Nordic American Tankers Limited (NYSE: NAT); Alexander & Baldwin, Inc. (NASDAQ: ALEX); Overseas Shipholding Group, Inc. (NYSE: OSG); Euroseas Ltd. (NASDAQ: ESEA); Ship Finance International Limited (NYSE: SFL); DryShips Inc. (NASDAQ: DRYS); and Seanergy Maritime Holdings Corporation (NASDAQ: SHIP).

We also took a look at the Guggenheim Shipping ETF (NYSE: SEA), the shipping ETF, is trying to signal that a turnaround is heading to the shipping sector. This one pays a very sporadic dividend and there is jus not even a two-year history to be able to track how its payments rise and fall through time. Because of uncertainty and pressure, the shipping sector was not a part of the 2012 Model Dividend Portfolio.

Now look at the chart on the ETF.  At $17.99, the 200-day moving average is $18.21 and this has not been anywhere close to the 2300-day moving average since back in April of 2011.  The question is whether this will act as a huge overhang and allow sellers to take profits or if this will be a new bullish mechanism that allows the run from the start of 2012 to continue.

Nordic American Tankers Limited (NYSE: NAT) recently posted a loss and its tax treatment understanding is that the dividend distributions of 2011 should count as a return of capital rather than as income for income tax purposes.  Where the story gets interesting is that earlier this week it posted a wider than expected loss.  It also sold 5.5 million more common shares back in January “to strengthen the Company’s resources, to fund future acquisitions and for general corporate purposes.”  Shares are down close to 10% from when they sold shares to the brokerage firms and the prior payouts have been $0.30 per quarter for a yield of close to 8.6% if it remains static in the quarters ahead.  At $13.93, the 52-week range is $1.58 to $26.18.

Alexander & Baldwin, Inc. (NASDAQ: ALEX) recently lost 7% after reporting lower 2011.  The company saw a weak trans-Pacific ship market after a recent parent split-up announcement in 2011 even forced the company’s Matson unit to shut down its second China-Long Beach service.  Its payout of $0.315 earlier in February at least compares to earnings estimates of $2.06 EPS for all of 2012. At $44.00, this stock only yields 2.8% today and the 52-week range is $33.09 to $55.50.

It was just a week ago that Overseas Shipholding Group, Inc. (NYSE: OSG) in the energy transportation services announced that it had suspended regular quarterly dividends based upon the downturn in international flag markets being deeper and longer than expected.  Unlike other sectors, this company’s management talked about economic uncertainty in the world persisting while banking markets have become more challenging.  The move is to preserve liquidity and the company plans to reassess the dividend as its end markets improve.

A smaller player named Euroseas Ltd. (NASDAQ: ESEA) in drybulk and containerized cargoes had normalized earnings of $0.04 in earnings per share while it declared a quarterly dividend of $0.05 per share as its twenty-sixth consecutive dividend.  It is smaller in market cap at $93 million today, but it listed an average of 16.00 vessels were owned and operated in the fourth quarter with an average day rate of $12,099 per day.

Ship Finance International Limited (NYSE: SFL) is set to report earnings on Friday, Feb. 17 and estimates are $0.38 EPS for the quarter but the estimates are $1.37 EPS in all of 2012 (versus from $1.72 EPS in 2011).  WIth its most recent payout being $0.39 per share per quarter, the company is paying out effectively all or more than all of its income.  Its yield is over 12% if it remains.  At $12.21 today, the 52-week trading range is $8.62 to $21.15.

DryShips Inc. (NASDAQ: DRYS) does not have a dividend, but its shares have skyrocketed and that rally has stepped back up even after petering out a few days ago.  While $3.57 is a far cry from its old highs, this is up over 50% this month alone.  Without a dividend this is merely a sample of how strong the moves can be around any positive news.

A smaller player named Seanergy Maritime Holdings Corporation (NASDAQ: SHIP) in dry bulk cargo is seeing a large gain on tiny volume (with a mere $25 million market cap).  The gain is after positive earnings and a profit, although it said that it expects overall shipping conditions to remain weak in 2012 with new vessel deliveries only contributing to oversupply.

The dividends here are definitely not immune to the woes of the world if they get worse again.  It is worth noting that the stock market has not agreed with the slower economy thesis.  Maybe the rail and trucking sectors are better on a risk-reward metric.  Ultimately, the verdict here remains uncertain and there is still likely to be a lot of volatility around the shipping sector as the globe floats between contraction and a low recovery continuing.

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JON C. OGG

Apollo Group Inc. (NASDAQ: APOL) Reiterated Buy and raised price target to $63 from $55 at Argus.
ASML Holding N.V. (NASDAQ: ASML) Raised target at Credit Suisse.
AutoNation Inc. (NYSE: AN) Started as Neutral at Stern Agee.
Bank of America Corporation (NYSE: BAC) Cut to Underperform from Neutral at Zacks (late Monday call).
Choice Hotels (NYSE: CHH) Cut to Underperform from Neutral at Credit Suisse.
Gulfmark Offshore, Inc. (NYSE: GLF) Started as Outperform at Credit Suisse.
HSN, Inc. (NASDAQ: HSNI) Started as Buy at Stifel Nicolaus.
ICICI Bank Ltd. (NYSE: IBN) Cut to Underperform as Bear of the Day at Zacks.
Intel Corporation (NASDAQ: INTC) maintained as the top tech/semi pick for 2012 from Credit Suisse.
Macy’s Inc. (NYSE: M) Reiterated Outperform and raised target to $36 from $32 at Credit Suisse.
Motorola Mobility Holdings Inc. (NYSE: MMI) Maintained Sell at Argus.
Netflix, Inc. (NASDAQ: NFLX) Cut to Underperform from Neutral at BofA/ML.
Overseas Shipholding Group Inc. (NYSE: OSG) Cut to Market Perform at Wells Fargo.
Republic Services, Inc. (NYSE: RSG) Cut to Neutral at JPMorgan.
Ryder System, Inc. (NYSE: R) named as value stock of the day at Zacks.
SM Energy Co. (NYSE: SM) Maintained Outperform as Bull of the Day at Zacks.
Starbucks Corporation (NASDAQ: SBUX) Reiterated Buy and raised estimates at Argus.
Tidewater Inc. (NYSE: TDW) Started as Neutral at Credit Suisse.
The Walt Disney Co. (NYSE: DIS) Cut to Equal-weight at Barclays.
Xerox Corporation (NYSE: XRX) Cut to Equal-weight at Barclays.

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JON C. OGG

General Maritime Corp. (NYSE: GMR) filed for bankruptcy protection yesterday citing low shipping rates for its fleet of 33 crude oil carriers and the company’s inability to comply with its debt covenants. Shipper Omega Navigation Enterprises Inc. (OTC: ONAVQ) filed for bankruptcy in July, and there is good reason to be concerned about other shippers like Teekay Tankers Ltd. (NYSE: TNK), Overseas Shipholding Group Inc. (NYSE: OSG), Nordic American Tanker Shipping Ltd. (NYSE: NAT), and Frontline Ltd. (NYSE: FRO).

Tanker rates are far below break-even rates and could stay there throughout 2012. The day rate for a very-large crude carrier (VLCC) is currently around $7,800, far below a break-even rate of around $30,000. To combat the low rates, some ship owners are considering selling their ships for scrap value. According to a report at Bloomberg, the cost to buy a 15-year old tanker is currently $23.5 million, while the scrap value of such a vessel is $17.25 million. That’s the narrowest difference in at least five years.

As much as 5% of the world’s oil tanker fleet could be scrapped in the next 18 months, but that would only raise rates to an estimated $12,817 by 2013, still less than half what is needed to hit a break-even rate. When profitability will return is anyone’s guess.

General Maritime and Omega Navigation depended heavily on the spot market for cargoes, which is a good position when prices are high, but a bad position when prices are low. Teekay has said that it has half its fleet booked through next summer, and could cover its costs even if the rest of the fleet remain idle. But in its third quarter earnings report, the company said it lost $291.2 million on fewer shipments and lower day rates. If there was any good news there, it was that Teekay didn’t lose as much as analysts had expected.

Tanker owners aren’t the only ones now struggling. Dry bulk shipper DryShips Inc. (NASDAQ: DRYS) actually beat estimates in its third quarter, primarily on the strength of the company’s move into offshore drilling vessels, not its shipping business. The company’s posted EPS loss of -$0.58 was better than the consensus estimate of -$0.61.

Navios Maritime Holdings Inc. (NYSE: NM), another dry bulk shipper, reported better-than-expected earnings yesterday, but net income was down year-over-year on increases in finance costs and higher depreciation/amortization charges. The company has said it is seeking a partner bank to acquire assets of distressed shippers at fire-sale prices. Frontline has also made the same claim.

Shares of Teekay Tankers are up about 1.4% in the first half hour of trading this morning, at $4.59, in a 52-week range of $3.48-$12.99. Navios shares are up about 0.8%, at $3.81, in a 52-week range of $2.88-$5.99. Frontline shares are down about -0.4%, at $5.72, in a 52-week range of $3.88-$28.93. DryShips is up nearly 0.8%, at $2.58 in a 52-week range of $1.75-$6.44.

Paul Ausick

Oil carrier General Maritime Corp. (NYSE: GMR) recently received a debt rating from Moody’s that puts the company’s debt at just one notch above default. Omega Navigation (OTC: ONAVQ) has already filed for bankruptcy, as have several other smaller tanker operators. The big problem is over-supply of vessels. Other tanker outfits that will be affected include Teekay Tankers Ltd. (NYSE: TNK), Overseas Shipholding Group Inc. (NYSE: OSG), Nordic American Tanker Shipping Ltd. (NYSE: NAT), and Frontline Ltd. (NYSE: FRO).

We noted last week the over-supply problems for container ships. Shippers ordered new vessels in 2007 and 2008, before the global economy went into paralysis. Now, those ships are being delivered and the added capacity is killing day rates. The container fleet has grown 17% since 2007 and new orders still to be delivered will increase the fleet size by another 28%. The dry bulk carrier fleet that hauls coal and iron ore and similar commodities is set to increase capacity by 36%. The very-large crude carrier fleet could expand by 14% this year alone.

In order to break even, the tankers must charge a day rate of nearly $30,000. The average short-term spot rate from the Persian Gulf to the Far East is now $1,795. Shippers try to make up for that by slow-steaming, which keeps the vessel on the water for a longer time, and by spending more time in port.

Shippers are burning through cash a a ferocious rate as they wait for rates to turn up, but that is not expected to happen for another year or more. Tanker outfit Teekay Tankers had less than half as much cash at the end of 2010 as it did at the end of 2008. Overseas Shipholding burned through nearly half its cash in 2010. Nordic American also saw its cash fall by nearly half in 2010.

Companies with relatively high charter numbers may be better able to weather the storm. Teekay Tankers claims that it has more than half its fleet chartered for the next 12 months, enough to cover all the company’s costs even if the rest of its ships are idled.

The world’s largest tanker operator, Frontline, claims to be on the lookout for buying opportunities as the smaller outfits collapse. With more than $300 million in cash available at the end of last year, the company is positioned to make good on that claim.

The demise of Omega and the possible collapse of General Maritime are a direct consequence of their dependence on the spot tanker market. Spot rates can be much higher than charter rates — and they can also be much lower. These two, and the other small carriers who bet on high spot rates, are headed for some very rough sailing.

Paul Ausick

Allscripts Healthcare Solutions, Inc. (NASDAQ: MDRX) Raised to Buy at Auriga.
AMR Corporation (NYSE: AMR) Cut to Neutral at JPMorgan.
Analog Devices Inc. (NYSE: ADI) Cut to Neutral at Stern Agee.
BHP Billiton Ltd. (NYSE: BHP) Cut to Neutral at Credit Suisse.
Boyd Gaming Corp. (NYSE: BYD) Cut to Underperform at BofA/ML.
Choice Hotels (NYSE: CHH) Raised to Neutral at Credit Suisse.
KiOR, Inc. (NASDAQ: KIOR) Started as Outperform at Credit Suisse.
Leap Wireless International Inc. (NASDAQ: LEAP) Cut to Neutral at Baird.
Marathon Oil Corporation (NYSE: MRO) Cut to Neutral at Credit Suisse.
Marriott International, Inc. (NYSE: MAR) Cut to Neutral at BofA/ML.
MetroPCS Communications, Inc. (NYSE: PCS) Cut to Neutral at Baird; Maintained Neutral but cut target to $12 at Credit Suisse; Maintained Buy with $22 target at Argus.
Overseas Shipholding Group Inc. (NYSE: OSG) Cut to Sell at Deutsche Bank; Cut to Hold at Jefferies.
P.F. Chang’s China Bistro, Inc. (NASDAQ: PFCB) Cut to Sell at Argus.
Rowan Companies (NYSE: RDC) Raised to Neutral at Credit Suisse.
Skilled Healthcare Group, Inc. (NYSE: SKH) Started as Underperform at BofA/ML.
Texas Instruments Inc. (NYSE: TXN) Cut to Neutral at Stern Agee.
Valero Energy Corporation (NYSE: VLO) Reiterated Buy with $35 target at Argus.
Yandex N. V. (NASDAQ: YNDX) Started as Overweight at JPMorgan.

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JON C. OGG

In the world of mortgages and housing, we saw new 52-week today in Hovnanian Enterprises (NYSE: HOV), PMI Group Inc. (NYSE: PMI), and Tree.Com (NASDAQ: TREE). Crexus Investment Corp. (NYSE: CXS) found pain in mortgages and specialty finance here as its shares closed down 1.9% at $10.89 versus a new 52-week range of $10.85 to $13.89.

Trust of smaller companies in China is still hard to come by as well.  China Ceramics Co., Ltd. (NASDAQ: CCCL) produces ceramic tiles for residential and commercial buildings and its ADR closed down 6.26% at $4.87 and it hit a low of $4.71 versus a 52-week high of $10.10.  China Armco Metals, Inc. (NASDAQ: CNAM) is in the sale and distribution of ore and non-ferrous metals in China; its ADR closed down almost 8% at $2.20 versus a low of $2.18 hit today and versus a 52-week high of $8.28.  QKL Stores Inc. (NASDAQ: QKLS) is a grocery store  chain in China and shares hit a 52-week low of $2.39 and closed down 5.6% at $2.50 today.  SinoCoking and Coke Chemical Industries, Inc. (NASDAQ: SCOK) is for coal in China and shares hit a low of $5.65 and closed down almost 4% at $5.79 versus a 52-week high of $27.20.  Ouch.  Telestone Technologies Corp. (NASDAQ: TSTC) in China for IT closed down 6.7% at $5.82 after hitting a low of $5.75 versus a 52-week high of $18.88.  Gulf Resources, Inc. (NASDAQ: GFRE) has a new 52-week range of $5.01 to $12.00 and its shares closed down 9.5% at $5.12 today.  This one is into bromine, crude salt, and chemical products for China.

Imagine how well these would be doing if the market was falling apart.

JON C. OGG

The tanker fleet is predicted to grow by nearly 13% in 2011, according to an estimate by Morgan Stanley cited at Bloomberg News.  There are currently about 526 VLCCs in the world’s fleet. The tonnage currently being built is equal to 27% of the existing tonnage and is the largest increase ever.

And the news won’t get better any time soon. Supertanker rates are expected to remain unprofitable for at least two years. Predictions of lower global GDP growth in 2011 could dampen international trade even more. One broker noted that rates for container ships have fallen for four straight weeks.

Frontline, the world’s largest supertanker owner, hit a new 52-week high in early May and has lost about 29% since then. The shares are still up more than 20% in past 12 months.

The story at Teekay is somewhat different. The shares posted a new 52-week high last week. The company has shed assets to some of its subsidiaries and announced that it would re-start its $200 million share buyback plan. The company also signed a contract with Brazil’s Petroleo Brasileiro SA (NYSE:PBR), or Petrobras, for a floating production storage and offloading vessel starting in the second quarter of 2012.

An analyst from Deutsche Bank has lowered his EPS loss estimate for Teekay from -$0.45 to -$0.75 for the third quarter. EPS loss estimates for General Maritime and Overseas Shipholding also widened. The analyst expects General Maritime to post an EPS loss of -$0.24 and Overseas Shipholding to post a whopping EPS loss of -$1.26, compared with an earlier expectation of -$0.43.

A Frontline executive noted that at current supertanker rates the company is better off anchoring ships and sending the crews fishing. That could be a long fishing trip.

Paul Ausick

ConocoPhillips (NYSE: COP) Started as Neutral at JPMorgan.
Group 1 Automotive Inc. (NYSE: GPI) Cut to Market Perform at Wells Fargo.
Huntsman Corporation (NYSE: HUN) Raised to Buy at Jefferies.
Interpublic Group (NYSE: IPG) Cut to Hold at Deutsche Bank.
Marathon Oil Corp. (NYSE: MRO) Started as Overweight at JPMorgan.
Murphy Oil Corp. (NYSE: MUR) Started as Underweight at JPMorgan.
Overseas Shipholding Group (NYSE: OSG) Cut to Hold at Cantor Fitzgerald.
Philip Morris International (NYSE: PM) Started as Outperform at Credit Suisse.
PG&E Corp. (NYSE: PCG) Raised to Outperform at Wells Fargo.

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JON C. OGG

Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) Cut to Market Perform at BMO.
ARM Holdings plc (NASDAQ: ARMH) Cut to SELL at Execution Noble (Overseas).
DryShips Inc. (NASDAQ: DRYS) Started as Market Perform at Wells Fargo.
General Maritime (NYSE: GMR) Started as Outperform at Wells Fargo.
GlaxoSmithKline (NYSE: GSK) Cut to Hold at Jefferies.
Nokia Corporation (NYSE: NOK) Reiterated Overweight at JPMorgan.
Overseas Shipholding Group (NYSE: OSG) Started as Outperform at Wells Fargo.
Sonic Corporation (NASDAQ: SONC) Cut to Hold at KeyBanc.
Teekay Corporation (NYSE: TK) Started as Outperform at Wells Fargo.
Volcom Inc. (NASDAQ: VLCM) Started as Buy at Jefferies.
Wimm-Bill-Dann Foods (NYSE: WBD) Started as Buy at Citigroup.

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JON C. OGG

• Central European Media (CETV) Raised to Neutral at JPMorgan.
• Chiquita Brands (CQB) Raised to Buy at Janney Montgomery Scott.
• CME (CME) Raised to Neutral at JPMorgan.
• Colfax (CFX) Raised to Buy ar KeyBanc.
• Jazz Pharmaceuticals (JAZZ) Cut to Underweight at Barclays.
• Overseas Shipholding Group (OSG) Cut to Market Perform at FBR.
• Polaris (PII) Raised to Outperform at RBC.
• UBS (UBS) Raised to Outperform at Credit Suisse.
• Webster Financial (WBS) Raised to Market Perform at FBR.

Jon C. Ogg
June 26, 2009