DryShips (DRYS) was recently downgraded from Neutral to Underperform. The downgrade was based on current volatile conditions of the shipping industry. In the most recent quarter reven
ue improved on a year over year basis but earnings per share swung from positive to negative. It was the third quarter in a row the company reported a loss and two more quarters of losses are expected. The dry bulk shipping and oil tanker industry are facing severe challenges as the vessel rate collapsed even below the rate during the recession. We believe the sole reason for this dismal condition is the sheer increase of vessels under operation that resulted in intense price competition.
We have a long term Underperform recommendation on the stock. Our target price of $1.50 is based on approximately 0.16x price to book metric.
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