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Scorpio Tankers: Solid Future Catalysts in Place

Scorpio Tankers (NYSE:STNG) is based in Monaco, and specializes in providing seaborne transportation of refined petroleum products across the globe through its fleet of 135 wholly...
Scorpio Tankers: Solid Future Catalysts in Place © Reuters. Scorpio Tankers: Solid Future Catalysts in Place

Scorpio Tankers (NYSE:STNG) is based in Monaco, and specializes in providing seaborne transportation of refined petroleum products across the globe through its fleet of 135 wholly owned, chartered-in tankers.

Scorpio Tanker owns the most extensive product tanker fleet in the world, which it has continuously expanded. It is also the most modern product tanker fleet in the industry, featuring an average age as low as 5.6 years.

Due to Scorpio's industry-beating scale, the company has been able to set up a commercial pool chartering strategy, outperforming its industry peers during favorable market environments. I am bullish on the stock.

In the first half of last year, for instance, Scorpio saw a massive surge in its average fleet TCE (Time Charter Equivalent). At the time, the logistical hurdles resulting from COVID-19 for the big oil players led to a surge in the need for product tankers to be utilized as floating storage.

Hence, due to Scorpio's substantial exposure to spot rates, the company had achieved an all-time high net income of $143.9 million in Q2 2020. Rates have since normalized, which has resulted in net losses during the past few quarters, following Scoprio's drydocking expenses, and the installment of eco-friendly scrubbers to its fleet.

However, this is normal for the industry as per its cyclicality. Below, there are three major catalysts which should boost the company's profitability going forward. (See STNG stock charts on TipRanks)

Future Catalysts

These days, there is a poor interest to make significant investments in new tankers due to cash flow deficiencies in the space. As a result, the industry experiences insufficient newbuilding orders, and an already soft order book.

The order book as a percentage of product tankers' total fleet continues to be near historic lows. The slower the global tanker fleet's growth rate amid growing industry demand, the stronger the pricing potential for the largest player in the industry. 

As mentioned, Scorpio owns the world's most extensive and modern product tanker fleet. It is also the leading owner in the MR and LR2 product tanker types. Therefore, Scorpio is well-positioned to lock in a growing market share moving forward.

In conjunction with the current state of the global fleet order book, Scorpio's advantage becomes even stronger. Further, Scorpio has invested heavily in its ECO fleet (scrubbers) which should draw more charterers compared to its peers as environmental regulations across the globe tighten.

Scorpio's modern, fuel-efficient fleet is set to gain momentum given its lower GHG emissions. Therefore, Scorpio should cement its position as the dominant company in the field of refined chemical seaborne transportation.

As the world gradually comes out of the ongoing pandemic, the energy sector's recovery should accelerate. For this reason, Scorpio is likely to experience increasing rates going forward.

As well, following an expanding number of vaccinations globally, personal mobility should also improve, which in turn should grow the consumption of gasoline, jet, and diesel fuel.

Overall, Scorpio's business model is very cyclical, and the energy sector is likely the least attractive place to allocate capital these days. Still, the company seems extremely well-positioned to profit significantly during favorable times, as it did when the opportunity arose last year.

Wall Street’s Take

Turning to Wall Street, Scorpio Tankers has a Moderate Buy consensus rating, based on five Buys, one Hold, and two Sells assigned in the past three months. At $21.88, the average STNG price target implies 46.5% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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19-03-2024 16:22:46 (UTC+7)

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    EUR/USD 1.0848 ↑ Buy  
    GBP/USD 1.2687 Neutral  
    USD/JPY 150.43 ↑ Buy  
    AUD/USD 0.6509 ↑ Sell  
    USD/CAD 1.3576 Buy  
    EUR/JPY 163.20 ↑ Buy  
    EUR/CHF 0.9632 Neutral  
    Gold 2,156.05 Neutral  
    Silver 25.113 ↑ Buy  
    Copper 4.1052 Buy  
    Crude Oil WTI 81.92 Sell  
    Brent Oil 86.59 ↑ Sell  
    Natural Gas 1.731 ↑ Buy  
    US Coffee C 181.20 ↑ Sell  
    Euro Stoxx 50 4,987.55 ↑ Buy  
    S&P 500 5,149.42 ↑ Sell  
    DAX 17,960.85 ↑ Buy  
    FTSE 100 7,715.98 ↑ Sell  
    Hang Seng 16,529.48 Sell  
    Small Cap 2000 2,024.74 ↑ Sell  
    IBEX 35 10,619.50 Neutral  
    BASF 49.325 ↑ Buy  
    Bayer 25.98 Buy  
    Allianz 266.00 ↑ Sell  
    Adidas 201.48 ↑ Buy  
    Lufthansa 6.828 Neutral  
    Siemens AG 183.05 ↑ Buy  
    Deutsche Bank AG 13.550 ↑ Sell  
Mua/Bán 1 chỉ SJC
# So hôm qua # Chênh TG
SJC Eximbank7,950/ 8,120
(-20/ -20) # 1,664
SJC HCM7,950/ 8,150
(10/ 10) # 1,694
SJC Hanoi7,950/ 8,152
(10/ 10) # 1,696
SJC Danang7,950/ 8,152
(10/ 10) # 1,696
SJC Nhatrang7,950/ 8,152
(10/ 10) # 1,696
SJC Cantho7,950/ 8,152
(10/ 10) # 1,696
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Cập nhật lúc 16:15:23 19/03/2024
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