It’s not on daily basis you come throughout a inventory that appears as deeply undervalued as Teekay (NYSE: TK).
The marine transport firm has been one among my favourite under-the-radar worth performs for some time now. And given its inventory chart, I’m positive its shareholders have felt a lot the identical manner.
After a greater than threefold rise from mid-2022 to February of this yr, the inventory has come down about 20% from its excessive. Even so, I’m extra satisfied than ever that the market is lacking the boat right here.
Let me clarify.
To begin, contemplate Teekay’s valuation. The corporate at the moment trades at an enterprise value-to-net asset worth (EV/NAV) ratio of simply 0.74. To place that in perspective, the common EV/NAV for comparable firms – firms with optimistic web property and 4 consecutive quarters of optimistic free money flows – is 6.8. That makes Teekay exceptionally low-cost.
In easier phrases, in case you wished to amass Teekay and all of its ships and different property right this moment, you’d need to pay solely $0.74 on the greenback, whereas its most comparable friends would price you greater than 9 instances as a lot.
However an inexpensive worth alone doesn’t make a inventory a screaming purchase. In any case, loads of awful companies commerce at steep reductions to e book worth. The true secret is discovering an organization that’s each cheap and persistently producing money.
And Teekay suits the invoice.
Over the previous 4 quarters, the corporate’s free money stream averaged a whopping 9.8% of its web property. The typical for firms with 4 straight quarters of optimistic free money stream was simply 8.6%.
So not solely is Teekay dust low-cost… it’s additionally persistently producing money flows at a better clip than common.
How is Teekay pulling this off whereas lots of its transport friends tread water? Two phrases: Teekay Tankers.
Teekay Tankers (NYSE: TNK), of which Teekay is almost all stakeholder, has confirmed to be a gold mine amid the current tanker market growth. With spot fleet charges for its Suezmax and Aframax tankers hovering in This fall to $37,000 and $45,000 per day, respectively, Teekay Tankers noticed its income bounce 10% over the earlier quarter to $313.3 million, whereas web earnings surged 37% to a file $111.7 million.
Teekay, the mother or father firm, has been milking this money cow to line its personal coffers. It obtained $2.4 million in money distributions from Teekay Tankers in This fall alone and $17 million for the total yr.
Because of this, its personal backside line has been fattening up fairly a bit.
And administration sees lots extra good instances forward for the tanker commerce. On account of a number of components within the macro atmosphere, together with the rebound in Chinese language oil demand, additional worries about regional battle within the Center East and ongoing provide constraints on account of the Russia-Ukraine warfare, oil costs might get an enormous increase.
If the tanker growth stays on target, Teekay might have large upside. And even when revenues cool off, you’re nonetheless paying a bargain-basement worth for a enterprise that gushes money.
To high it off, Teekay continues to give attention to returning capital to shareholders. In This fall, the corporate repurchased $4 million value of its inventory, bringing the entire worth of its buybacks since August 2022 to a hefty $65.8 million.
That’s a severe vote of confidence from administration that these dirt-cheap shares are value scooping up. And I couldn’t agree extra.
The Worth Meter charges Teekay as being “Extraordinarily Undervalued.”
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