Frontline Limited (FRO) recently tripled its dividend in a surprise move after a difficult 2009 for the shipping sector.Frontline operates one of the largest fleets of oil tankers in the world. Earnings have plunged in the last 18 months as crude prices declined from record highs and the global recession sent demand into a tailspin.
At the record high on oil prices in July 2008, Frontline's earnings per share was around $9 and then it plunged to $1.32 per share in 2009.
You can see the decline in the earnings in the chart below. Analysts expect some rebound into 2011 but then it looks uncertain from there.
Frontline Surprised by 40.6% in the First Quarter
On May 21, Frontline reported a better than expected first quarter with earnings per share of 90 cents compared to the Zacks Consensus of 64 cents. The earnings boost was the result of a stronger spot market compared to the fourth quarter of 2009.
The average daily time charter equivalents (TCEs) earned in the spot and period market in the first quarter by Frontline's VLCCs, Suezmax tankers and Suezmax OBO carriers were $45,300, $31,800 and $47,900 which is much higher than the $33,200, $21,300 and $42,800 average in the fourth quarter.
In March, the company completed a $225 million convertible bond offering with proceeds from the bonds being used for general corporate purposes, financing of remaining equity investments in the company's newbuilding program and for any future market opportunities.
Dividend Raised
On May 20, Frontline's board declared a 75 cent dividend for those shareholders of record as of June 2. This is a big raise from the prior quarter's dividend of 25 cents. Frontline paid out 90 cents in dividends for the entire 2009 year.
The big dividend increase pushed the dividend yield up to 10%. It is payable on June 21.
Frontline has seen the global recovery advancing at different paces depending on the part of the world. The emerging markets are off to a stronger recovery with Asia in the lead. The advanced economies are tepidly growing with the US off to a better start than Europe or Japan.
Given that the company had already seen about 3 weeks worth of trading in the second quarter, it said that it appeared the good results would continue into the second quarter. But, of course, 3 weeks does not make the whole quarter and anything can happen in the global economy, from a greater slowdown in Europe and China to an overheating in Brazil.
Zacks Consensus Estimates Rise
The analysts pretty much like what they heard from the company last week. 6 estimates rose for the second quarter boosting the estimate to 57 cents from 43 cents just a week earlier.
The 2010 Zacks Consensus jumped 18.7% to $2.92 from $2.46 in the last week as 7 estimates moved higher and 1 fell. Just 90 days, the estimate stood at only $1.92 per share.
Earnings are expected to continue to grow in 2011, but at a slower pace of just 13.2% compared to 2010. The 2011 Zacks Consensus has risen by 39 cents to $3.30 per share in the last week.
Value Fundamentals
Frontline has a forward P/E ratio of only 10.3 which is under the industry average of 17. It also has a value price-to-book ratio of 2.9.
The company's 5 year average return on equity if a stellar 73% but even it's one year ROE is a solid 13%, especially when compared to its industry that averaged just 6.8%.
Frontline is strong buy stock.
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