EGLE - Eagle Bulk Shipping

Not the greatest of picks, as I realize the sector in general is limited, but I have had a long history with this one and decided to average down... twice!... with a significantly larger proportion than I started with.... Timing not so great as my average price is now 4.91 (because I already held a poor position) and I jumped in before todays catastrophic drop. It feels like I just shit in my hat and pulled it down tight over my own ears.

My choice is strictly based on familiarity with the stock and its price history. Way, way over sold at this point and well below the 50 and 200 day moving averages which are $4.98 and 5.08 ranges. Other shippers are also down, so I am assuming the news is accros the board and I am unsure where this will go in the next few weeks, but my price target is between $5 and $5.2.

I guess two years of monitoring a stock not only says nothing about understanding the price varriations or anticipates the bankruptcy of a major player, but it goes to showe that my judgement is not always perfect either.

I actaully jumped on EGLE on tues after the drop when it hit around $4.10, but sold at $4.02 once I read about the impact of the bankruptcy leaving approx 13 ships to be recontracted in a bad market.

I am surprised the market has not reacted as badly as I would have expected to such news and the stock only dropped 10%.

The stock actually dropped around 20% considering that its 50 and 200 day moving averages were in the $5 range, and also considering that this news was obviously leaked to an extent, which can be observed by the drop in price pre-news release.

Yeah, I guess that is about right. Anyway, I know how you feel. Got some thoughts on the Outlook of this stock, but not enough time. I am looking into Diana Shipping (DSX) as an alternative to this stock, but am not sure about some information regarding a recent spinoff and need to research further.

Well after getting my ass kicked around with this stock I stopped watching it with the expectations that eventually it would recover. I recently decided to take a look and found out that I am still getting my ass handed to me, but its starting to look like ground beef. Now I have to look at it differently. I'm down 45% or roughly $8000 and I'm concerned that they are going under. I'm not sure if it serves me right for not watching it, because I've been leaning towards the buy and hold investing style... the thing is that bankruptcy isn't factored into my strategy.

On one hand this company might finally be kicking the bucket, although they could dilute and raise some more money, but it may only have short term benefit, and unfortunately that will also mean dilution. On the other hand, if I were to buy a stock, I generally would look for something that is undervalued or has experienced a significant decline which would make it more appealing (bankruptcy asside). The prospect of making back my 45% loss on this stock means that it has to go up by about 80% from current prices, which is extremely unlikely, even in the best of cases.

Its amazing that a stock that used to trade in the $30 per share range, which gave $2 in annual dividends has come to this dismal outcome. But the entire sector has followed suit to a similar effect, which is slightly disturbing because in a world of globalization one would expect growth in international trade and shipping. So, I'm in a tight spot and I have to ask what my investing colleagues would do in such a situation: Do I hop on a life-raft and seek medical attention or do I go down with the ship?

Shares Out - 65M

Cash - $1.50 per share
Current Assets / Current Liabilities - 3x
Debt - $17.00 per share
Book Value - $10 per share at nominal asset value (a 10% reduction in the resale value of the vessel assets would reduce book value by about $2 per share, 20% = $4 per share reduction..... a reduction of up to 30% would be the worst case scenario I think.)

So far it doesn't look too bad. The biggest problem is the income statement.

EPS = -0.09 for the quarter (earnings are too unstable to predict for the year, but probably equally bad for the rest of 2011).

The debt load is so massive, that they are going to have a hard time earning their way out of it. They are spending 13% of revenue (not net income, REVENUE) on interest expense. It just seems completely insurmountable considering they doubled revenue from the previous quarter. Last quarter they spent 20% of revenue on interest expense.

I calculate the residual value of the company net of all claims to be about $0.30 per share. A lot of the non-vessel assets are advances and other things that will not be recoverable. Basically it is the $100M in cash - $41M current liabilities and another $40M non ship related long term liabilities.

The good news:

The residual value calculated above is in complete breakup mode. Excess of cash over liabilities is $20M, which at the current rate of loss keeps the company in business 6 more months without additional financing (which they would be searching for furiously in that time). In order to go bankrupt, you have to have more liabilities than debt. This is currently not the case. As a going concern, the book value comes out to roughly $4 even in my worst case 30% reduction of asset values, which is quite a lot higher than the current stock price. They could easily be bought out by a competitor, although where that competitor would find the cash in the current economic environment, who knows.

The implied interest rate on their $1.15B in debt is ((11M / 1.15B) x 4) = 3.8%. Looks like the bank thinks there is low risk. Probably because the loans are secured against the ships.

So for sure the company is worth much more as a going concern than in liquidation and the current stock price is below the going concern valuation, so a buyout is a likely scenario. Probably the bank will continue to extend the loan, since it doesn't want to get stuck with a bunch of ships. Then again, if the ships can be sold at anywhere near their book value, the bank could profit hugely the company going bankrupt.

Its dicey, and I don't see a catalyst to bring a turnaround any time soon to the industry. Then again, I said the same think about TCK.B when it was at $7.