Costamare (NYSE:) stock has been an outperformer in the last 12 months. Over 200% has happened during this time.

Strong fundamental developments have backed the upside of CMRE stock. Strong fundamental developments have bolstered the containership market. Further, the company’s entry into the dry bulk segment is likely to deliver results.

Some correction is possible after a strong rally. But, I remain bullish on Costamare due to its strong growth potential for 2022. (See CMRE stock charts on TipRanks)

Cash Flow Visibility

The global economy has been on a recovery path after the pandemic-driven recession. Containership markets seem to be among the biggest beneficiaries.

Costamare recorded a 450% year-over-year increase in charter rates for Q2 2021. It is important to mention that contracted revenues for Costamare were $3.3 billion in July 2021. Additionally, the remaining average time-charter length for containership fleets is 4.3years. It provides cash flow transparency.

The market is attractive for containerships and the orderbook has increased to 21%. However, the majority of containerships are due for delivery by 2023. Medium-term demand and supply trends remain favorable.

Diversification into Dry Bulk

It seems that the company’s diversification into dry bulk shipping is well timed. Recent highs in the dry bulk Baltic Index have reached 12 year marks. The dry bulk market will remain attractive due to port congestions, and an increase in industrial commodities.

Costamare’s dry bulk fleet consisted of 27 vessels as of August 2021. The company also had 10 vessels on order for delivery by December 2021.

It’s worth noting that most of the operational fleet is operating with a healthy charter rate. The impact of dry bulk vessel operations on cash flow through 2022 is expected to be significant.

Costamare predicts that the growth of dry bulk vessels will slow over the next two-years from a supply standpoint. It is expected that charter rates will remain steady as a result.

Healthy Financial Profile

It’s worth noting that the dry bulk market is volatile. Costamare kept its leverage at a maximum of 60% to preserve a healthy financial profile.

Additionally, Costamare reported 4.54 net debt-to adjusted EBITDA in Q2 2021. Although leverage appears to be higher than normal, two things are worth noting.

Second, there is a solid charter backlog. This means that there’s clear cash flow visibility over the next years.

Costamare also reported a 6.19 EBITDA to-interest ratio as of Q2 2021. The debt servicing ratio indicates that there is still room for more leveraging.

Costamare had a liquidity buffer totaling $353.8million as of Q2 2021. The increased leverage from vessel acquisitions will likely be associated with an increase of EBITDA as well as cash flows. It is likely that the balance sheet metrics remain solid.

Also, the cash flow visibility should ensure dividends continue to grow. Costamare currently has an annualized distribution of $0.48. This implies that the company is likely to earn a healthy 2.6% yield.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, CMRE stock comes in as a Moderate Buy, with two Buys assigned in the past three months.

Assuming a 14.9% upside from the current levels, the average CMRE target price is $18 per shares.

Final Verdict

Costamare is positioned to benefit from positive industry tailwinds. Through 2022, revenue growth and earnings growth will be strong thanks to the acquisition of dry bulk vessels.

Costamare still has a strong balance sheet despite its aggressive acquisitions of vessels. After a huge rally, some correction may be in the offing. It appears that CMRE stock has the potential to continue in an uptrend.

Disclosure: Faisal Humayun didn’t hold any positions in the securities discussed in this article at the time it was published.

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