It’s not each day you come throughout a inventory that appears as deeply undervalued as Teekay (NYSE: TK).
The marine delivery firm has been one in all 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 approach.
After a greater than threefold rise from mid-2022 to February of this 12 months, 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, think about Teekay’s valuation. The corporate at present trades at an enterprise value-to-net asset worth (EV/NAV) ratio of simply 0.74. To place that in perspective, the typical EV/NAV for comparable firms – firms with constructive web property and 4 consecutive quarters of constructive free money flows – is 6.8. That makes Teekay exceptionally low cost.
In less complicated phrases, for those who needed to accumulate Teekay and all of its ships and different property at this time, you’d need to pay solely $0.74 on the greenback, whereas its most comparable friends would value you greater than 9 occasions as a lot.
However an affordable value alone doesn’t make a inventory a screaming purchase. In spite of everything, loads of awful companies commerce at steep reductions to e-book worth. The actual secret is discovering an organization that’s each cheap and constantly 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 constructive free money stream was simply 8.6%.
So not solely is Teekay filth low cost… it’s additionally constantly producing money flows at a better clip than common.
How is Teekay pulling this off whereas a lot of its delivery 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 latest tanker market increase. 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 revenue surged 37% to a report $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 12 months.
Because of this, its personal backside line has been fattening up fairly a bit.
And administration sees lots extra good occasions forward for the tanker commerce. Resulting from a number of elements 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 because of the Russia-Ukraine conflict, oil costs might get an enormous increase.
If the tanker increase stays on track, Teekay might have huge upside. And even when revenues cool off, you’re nonetheless paying a bargain-basement value for a enterprise that gushes money.
To prime it off, Teekay continues to deal with returning capital to shareholders. In This fall, the corporate repurchased $4 million price 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 price scooping up. And I couldn’t agree extra.
The Worth Meter charges Teekay as being “Extraordinarily Undervalued.”
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