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Solid Future Catalysts in Place By TipRanks


© Reuters. Scorpio Tankers: Solid Future Catalysts in Place

Scorpio Tankers (NYSE:) 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 is the owner of the most comprehensive product tanker fleet worldwide, and it continues to grow. The average age of its product tanker fleet is 5.6 years. This makes it the youngest in the business.

Scorpio’s market-beating size has allowed the company to establish a commercial pool chartering strategy that outperforms its peers in favorable markets. This stock has my full support.

Scorpio experienced a huge increase in TCE (Time Charter Equivalent) fleet size during the first half last year. The logistical challenges resulting from COVID-19 and big oil producers led to a rise in the use of product tankers 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. Since then, rates have normalized which has led to net losses in the last few quarters due to Scoprio’s drydocking and installation of eco-friendly scrubbers for its fleet.

This is normal in the sector due to its cyclicality. These are the three main catalysts that should increase profitability for the company in the long-term. (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. This has led to a lack of newbuilding orders and a soft order book.

Still, order book percentages of total product tanker fleet remain at historical lows. A slower rate of growth in global tanker fleets amid increasing industry demand will mean that the biggest player in the market has a stronger pricing opportunity. 

Scorpio has the most advanced and extensive product tanker fleet in the world. Scorpio is the largest owner of MR and LR2 products tankers types. Scorpio will be able to capture a greater market share as it moves forward.

Scorpio’s competitive advantage is enhanced due to the strong global fleet orderbook. Scorpio’s ECO fleet, which is a scrubber-powered vehicle that can be used to transport cargo and people around the world, has been heavily invested in. This will help it attract more charterers than its competitors as regulations tighten across the globe.

Scorpio’s fuel-efficient, modern fleet should gain momentum due to its lower GHG emissions. Scorpio must be the leader in refined chemical seaborne transport.

The energy sector should see a gradual recovery as the global pandemic subsides. Scorpio will likely experience an increase in its consumption rates over the next few years.

Personal mobility will also increase as a result of increasing vaccinations worldwide. This should lead to an increase in the use of jet fuel, gasoline and diesel fuel.

Scorpio’s business model seems very cyclical. The energy sector may be one of the less attractive places to invest capital. The company is still well-positioned to make significant profits in favorable economic times. This was true even though it didn’t have the chance 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: Nikolaos Sismanis had no position at the time this article was published.

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