We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Costamare (CMRE) Surges 43% YTD: What Should Investors Do Now?
Read MoreHide Full Article
Shares of marine shipping company Costamare Inc. (CMRE - Free Report) have had a good time on the bourses this year, driven by tailwinds like favorable market sentiments pertaining to dry bulk shipping and its focus on fleet modernization and capacity enhancement. Costamare, one of the leading owners and providers of containerships and dry bulk vessels for charter across the globe, has gained in excess of 40% on a year-to-date basis, outperforming not only its industry but also other shipping companies like Danaos Corporation (DAC - Free Report) and Frontline plc (FRO - Free Report) .
YTD Price Performance
Image Source: Zacks Investment Research
In view of this impressive price performance, the question that naturally arises is whether Costamare’s impressive rally has legs or should investors book profits now. Before that, let's delve deep to unearth the reasons behind this northward price movement.
Factors Aiding Costamare
CMRE shares are being aided by favorable market conditions in the dry bulk sector. Factors like a build-up of iron ore inventories in China have resulted in higher capesize freight rates.
The company's dry bulk and containership fleets are being aided by the ongoing Red Sea tensions. Notably, the Red Sea is the entry point for ships using the Suez Canal, which handles a significant percentage of world trade. The Suez Canal represents the shortest sea route for the transportation of goods between Asia and Europe. However, the attacks by Yemen’s Houthi militants on vessels in the Red Sea have disrupted maritime trade. As a result, many shipping companies have hit the pause button as far as transit through this route is concerned. Keeping the safety of their crew in mind, they are adopting the longer and costlier route around the Cape of Good Hope in South Africa rather than through the Suez Canal.
Reduced container availability due to the Red Sea tensions has resulted in a rise in freight costs. Costamare is benefiting from the surge in dry bulk rates. Lower capacity is expected to boost earnings. Rates are likely to remain high for quite some time, which should aid shipping stocks like Costamare.
The company’s focus on fleet modernization and leasing is also impressive. In April, while releasing first-quarter 2024 results, management stated that it secured contracts for 97% and 80% of its containership fleet for 2024 and 2025, respectively, in turn generating upbeat contracted revenues of $2.3 billion with a remaining time charter duration of 3.4 years. This significant amount of contract coverage lowers CMRE’s exposure to shipping market volatility apart from ensuring solid cash flows. This fleet renewal strategy improves operational efficiency.
Additionally, CMRE’s strategy of acquiring newer and larger vessels, such as Capesize vessels, with an average age of about 12.5 years, highlights the shipping company’s focus on fleet modernization and capacity enhancement. CMRE’s investment in Neptune Maritime Leasing highlights the company’s focus on expanding its leasing platform.
Costamare’s shareholder-friendly approach throws light on its financial prosperity. The shipping company pays out a quarterly dividend of 11.5 cents (46 cents annualized) per share, which gives it a 3.20% yield at the current stock price. (Check Costamare’s dividend history here).
CMRE Trading at a Discount
From a valuation perspective, Costamare is trading relatively cheaply. CMRE is currently trading at a forward sales multiple of 1.18, below its median of 1.28 over the last five years and also at a discount compared to the broader industry. The company has a Value Score of A.
Image Source: Zacks Investment Research
What Should Investors Do?
Despite the abovementioned tailwinds, there are a couple of factors that keep us cautiously optimistic. Even though Costamare is attractively valued and has strong fundamentals, we are concerned about its high debt levels.
Long-Term Debt to Capitalization
Image Source: Zacks Investment Research
Another factor to be mindful of is that the company's expenses are shooting up, mainly voyage costs. Voyage costs skyrocketed 463% in 2023 from the 2022 level. High fuel costs are not helping matters. High costs hinder bottom-line growth. The Zacks Consensus Estimate for CMRE’s 2025 EPS implies a substantial decline from the 2024 expectation.
Image Source: Zacks Investment Research
Final Thoughts
Given the abovementioned headwinds, we believe that it is not the right time to buy CMRE stock despite it being attractively valued and having a lot in its favor. We can safely conclude that investors should refrain from rushing to buy CMRE now as it is facing quite a few challenges.
Instead, they should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank #3 (Hold) supports our thesis.
Image: Bigstock
Costamare (CMRE) Surges 43% YTD: What Should Investors Do Now?
Shares of marine shipping company Costamare Inc. (CMRE - Free Report) have had a good time on the bourses this year, driven by tailwinds like favorable market sentiments pertaining to dry bulk shipping and its focus on fleet modernization and capacity enhancement. Costamare, one of the leading owners and providers of containerships and dry bulk vessels for charter across the globe, has gained in excess of 40% on a year-to-date basis, outperforming not only its industry but also other shipping companies like Danaos Corporation (DAC - Free Report) and Frontline plc (FRO - Free Report) .
YTD Price Performance
In view of this impressive price performance, the question that naturally arises is whether Costamare’s impressive rally has legs or should investors book profits now. Before that, let's delve deep to unearth the reasons behind this northward price movement.
Factors Aiding Costamare
CMRE shares are being aided by favorable market conditions in the dry bulk sector. Factors like a build-up of iron ore inventories in China have resulted in higher capesize freight rates.
The company's dry bulk and containership fleets are being aided by the ongoing Red Sea tensions. Notably, the Red Sea is the entry point for ships using the Suez Canal, which handles a significant percentage of world trade. The Suez Canal represents the shortest sea route for the transportation of goods between Asia and Europe. However, the attacks by Yemen’s Houthi militants on vessels in the Red Sea have disrupted maritime trade. As a result, many shipping companies have hit the pause button as far as transit through this route is concerned. Keeping the safety of their crew in mind, they are adopting the longer and costlier route around the Cape of Good Hope in South Africa rather than through the Suez Canal.
Reduced container availability due to the Red Sea tensions has resulted in a rise in freight costs. Costamare is benefiting from the surge in dry bulk rates. Lower capacity is expected to boost earnings. Rates are likely to remain high for quite some time, which should aid shipping stocks like Costamare.
The company’s focus on fleet modernization and leasing is also impressive. In April, while releasing first-quarter 2024 results, management stated that it secured contracts for 97% and 80% of its containership fleet for 2024 and 2025, respectively, in turn generating upbeat contracted revenues of $2.3 billion with a remaining time charter duration of 3.4 years. This significant amount of contract coverage lowers CMRE’s exposure to shipping market volatility apart from ensuring solid cash flows. This fleet renewal strategy improves operational efficiency.
Additionally, CMRE’s strategy of acquiring newer and larger vessels, such as Capesize vessels, with an average age of about 12.5 years, highlights the shipping company’s focus on fleet modernization and capacity enhancement. CMRE’s investment in Neptune Maritime Leasing highlights the company’s focus on expanding its leasing platform.
Costamare’s shareholder-friendly approach throws light on its financial prosperity. The shipping company pays out a quarterly dividend of 11.5 cents (46 cents annualized) per share, which gives it a 3.20% yield at the current stock price. (Check Costamare’s dividend history here).
CMRE Trading at a Discount
From a valuation perspective, Costamare is trading relatively cheaply. CMRE is currently trading at a forward sales multiple of 1.18, below its median of 1.28 over the last five years and also at a discount compared to the broader industry. The company has a Value Score of A.
What Should Investors Do?
Despite the abovementioned tailwinds, there are a couple of factors that keep us cautiously optimistic. Even though Costamare is attractively valued and has strong fundamentals, we are concerned about its high debt levels.
Long-Term Debt to Capitalization
Another factor to be mindful of is that the company's expenses are shooting up, mainly voyage costs. Voyage costs skyrocketed 463% in 2023 from the 2022 level. High fuel costs are not helping matters. High costs hinder bottom-line growth. The Zacks Consensus Estimate for CMRE’s 2025 EPS implies a substantial decline from the 2024 expectation.
Final Thoughts
Given the abovementioned headwinds, we believe that it is not the right time to buy CMRE stock despite it being attractively valued and having a lot in its favor. We can safely conclude that investors should refrain from rushing to buy CMRE now as it is facing quite a few challenges.
Instead, they should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank #3 (Hold) supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.