Evercore's research team says the tanker sector covered in its analysis has materially strengthened its balance sheets over recent years. The firm notes that the average debt-to-capital ratio across seven publicly traded tanker companies is projected to be close to 25% by the end of this year, a marked decline from levels that frequently approached 60% in the period around the global financial crisis.
According to Evercore's tracking, the group of seven tanker stocks saw average total debt-to-capital ratios fall below 40% in 2022 and slip under 30% in 2024. The analysts contrasted this trend with the 2006-through-post-financial-crisis timeframe, when these ratios typically remained above 50%.
Even as Evercore acknowledged the stronger capital structures, the firm warned of a number of sector-specific headwinds. The analysts highlighted an anticipated uptick in newbuilding deliveries and pointed to what they described as large gaps in how the market values companies that pay high dividends versus those that adopt more conservative capital-allocation strategies.
Evercore emphasized that healthier balance sheets do not make shares immune in a market downturn. However, the firm said lower leverage reduces the immediate pressure on management teams to respond to cash-flow stress with measures such as forced asset sales or equity issuances.
The tanker names under coverage have posted meaningful share-price gains year-to-date, with rises ranging from 35% to 61%. From their respective 52-week lows, the stocks have climbed between 57% and 117%, according to Evercore's summary.
Looking ahead, Evercore suggested that the improved financial position among some companies could create optionality. Specifically, those firms may be in a position to pursue sizeable asset purchases even if market conditions soften.
Context and implications
- The sector-wide reduction in leverage alters managers' flexibility during periods of volatility, potentially affecting investment, acquisition, and dividend decisions.
- Supply-side developments - namely higher newbuilding deliveries - and divergent market valuations are central risks flagged by the analysts.
- Short-term share performance has been strong across the covered names, but Evercore cautions that balance-sheet strength is not an absolute safeguard against price declines.