Overseas Shipholding Group recently raised its dividend by 40% as shipping rates remain high. The company has surprised on estimates 2 out of the last 4 quarter by an average of 5.14%. Overseas Shipholding has a price-to-book (P/B) of only 1.1.

Company Description

Overseas Shipholding Group, Inc. (OSG), headquartered in New York City, transports crude oil and petroleum products around the world with a fleet of 121 vessels.

As of June 30, 50% of the ships were company-owned, with the remaining bareboat or time chartered in. 35 vessels are also in the newbuild program.

The company, a Zacks #1 Rank (Strong Buy), is a member of Tankers International, Aframax International and Panamax International, which are commercial pools of similar size and quality vessels with different ship owners.

The fleets are combined to act as a single fleet, which members believe improves customer service and vessel utilization as the larger fleet allows for expanded geographical coverage and more market concentration.

OSG continues to change its vessel line-up. On Aug 13, the company announced the sale two 1997-built dry bulk carriers. The sale is expected to generate $55 million in the third quarter.

Overseas Beat Wall Street Estimates for the Second Quarter by 15.69%

On July 19, Overseas reported second quarter earnings that surprised on estimates by 43 cents per share. Net income rose 10% to $86.9 million, or $2.81 per share, from $79 million, or $2.28 per share in the year ago period.

Accounting for the sales of various vessels during the quarter, EPS were $3.17. Analysts had expected $2.74 per share.

Revenues jumped 41% to $386.1 million from $274.2 million in the second quarter of 2007. The company attributed the increase to an 82% increase in spot charter rates for the VLCCs and an 75% increase for Aframaxes.

The company is bullish about the strength of the shipping sector.

“The crude oil tanker market saw unprecedented levels of strength in the first half of 2008, primarily due to OPEC production increases,” said Morten Arntzen, President and CEO.

“This resulted in a significant pick-up in long haul movements at the same time as single hull discrimination increased, creating a strong freight rate environment. On the product tanker side, rates were lifted by a surge in diesel movements worldwide.”

“Market conditions continue to create a very strong outlook for our crude tankers and the prospects for our other two main businesses are equally compelling,” he added.

Consensus Estimates Soar for the Third Quarter and the Full Year

Analysts responded to the bullish second quarter report by significantly raising estimates for the third quarter and the full year. Third quarter estimates soared to $3.45 from 31 cents per share in the last 30 days with all 7 covering analysts raising estimates.

For the full year, estimates jumped 60% to $12.66 from $7.93 per share with all covering analysts raising estimates in the last month.

Value Fundamentals

Overseas Shipholding Group is cheap, trading at only 7.4x forward earnings. Its price-to-book is 1.10, under the industry average of 1.40. The company also has an outstanding five year average return on equity (ROE) of 19.56%.

OSG also announced it was increasing its dividend by 40% to $1.75 annually per share. The result is a current yield of 2.60%.

Content Courtesy: Zacks Investment Research

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