Shares of oil shipper Teekay Tankers (NYSE: TNK) got the thumbs-up from analysts at Wells Fargo this morning, sparking a rally that sent Teekay stock up 9.9% by close of trading — and had the shares up nearly 12% earlier in the day.
Calling Teekay “uniquely positioned” to benefit from an expected increase in oil production by OPEC countries this month, Wells Fargo upgraded Teekay stock to “outperform” and assigned the stock a new $2 price target, as explained in a note on TheFly.com today.
If Wells is right about that, it would imply a near doubling in Teekay’s stock price, which currently sits closer to $1 than $2.
Additionally, Wells argued that new regulations for the reduction of sulphur content in maritime diesel fuel, known as “IMO 2020” (denoting a ruling of the International Maritime Organization designed to go into effect on Jan. 1, 2020), will be a boon to Teekay. Teekay already has plans in place to meet the new requirements by switching to using distillates containing only 0.5% sulphur content to fuel the 52 double-hull tankers in its fleet, and it will not switch to using liquefied natural gas as a fuel source.
Wells Fargo’s prediction of a near-doubling in Teekay’s stock price was bound to attract attention on Wall Street — and it did. That being said, investors need to be aware that Teekay Tankers is currently losing money — $58 million in losses recorded last year, and $81 million lost over the past 12 months. The company is also carrying a very large debt load of $1.1 billion, far more than the $50 million it has in the bank, and the company’s market capitalization is less than $300 million.
This suggests that even more than OPEC policy, investors need to keep focused on Teekay’s debt levels, which have been rising for two years now. The company did, however, win approval from its shareholders today to “increase the number of authorized shares of Teekay Tankers’ Class A common stock from 285,000,000 to 485,000,000.”
This may be the first step toward a new share issuance that will dilute shareholders, but raise cash to pay down the debt.
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