The outlook for dry bulk carriers appears strong, with a cycle peak expected later this year or in early 2019, according to JPMorgan.
JP Morgan analyst Noah Parquette downgraded shares of Diana Shipping Inc. and Navios Maritime Partners L.P. from Overweight to Neutral. The analyst lowered his price target for Diana Shipping from $6 to $5.
The Thesis
With the cycle peak imminent, JP Morgan said it is becoming more selective on stocks in the space, hence the downgrade of Diana Shipping and Navios Maritime Partners.
Diana Shipping has low risk exposure within the firm’s dry bulk coverage universe due to its relatively low leverage, small new-build program and high charter coverage, Parquette said in a Wednesday note. (See the analyst’s track record here.)
The low risk profile limits upside potential vis-à-vis more spot-oriented companies, the analyst said.
The analyst said he’s concerned about Diana Shipping’s economic exposure to container shipping through its loans to Diana Containerships Inc.
JP Morgan downgraded Navios Maritime Partners primarily on valuation. Navios does have substantial positives such as low leverage, relatively higher charter coverage, low cost basis and diversification into the containership sector through long-term charters, Parquette said.
“At this point, we anticipate a cycle peak around 12-18 months out, and assuming investors are forward looking six to nine months, we see a dry bulk investment having an exit potentially in the back half of 2018,” the analyst said.
The Price Action
Over the past year, Navios Maritime shares climbed about 42 percent compared to a more modest 9-percent advance by Diana Shipping.
At the time of writing, shares of Navios were sliding 3.2 percent to $2.27, while Diana Shipping stock was plunging 5.91 percent to $4.06.