Teekay Tankers (NYSE:TNK) +3% in Friday’s trading after surging nearly 8% earlier, as Bank of America upgraded the stock to Buy from Neutral with a $72 price target, raised from $56, with the bank saying it is increasingly positive on crude tankers as ton-mile demand accelerates alongside a supportive order book backdrop.
“We expect the shipping supply-demand balance to remain favorable with rates holding well above carrier breakeven levels, leading to strong cash generation, [which] should drive accelerating shareholder returns as buybacks and dividends scale,” BofA’s Ken Hoexter wrote.
While continuing to see the macro backdrop as uncertain, route diversions from Red Sea disruptions and low water levels at the Panama Canal should lead to rate strength, as longer sailing routes lead to increased demand for capacity to move the same volume of crude, Hoexter said.
Unlike liners, tanker carriers operate mostly under spot charter rate, so volatility in rates has a more immediate impact to earnings, the analyst added.
Hoexter maintained a neutral rating and $70 PT on Scorpio Tankers (STNG).