Why UBS Is Buying This Undervalued Marine Transport Stock

Stock pickers often have to decide whether they want to chase yield or growth in the market, but UBS analyst Spiro Dounis believes that he’s found a stock that has it all. In a new report, Dounis explains why tanker company Euronav NV EURN represents the best of both worlds.

Double-digit yield
When it comes to yield, Euronav is in the top tier of the market. Dounis estimates that the company will pay out a greater than 13 percent yield in 2016 and sees the dividend as the top reason to own the stock. He points out that Euronav is the highest-yielder of all the tanker stocks and believes that the company is well-positioned to capitalize on a rally in tanker rates.

Undervalued
Discounted cash flow analysis indicates that Euronav should be trading at around 1.4x P/NAV instead of its current 1.2x level. “Based on the current trading price, we estimate an EV/EBITDA multiple of 6.1x which is well below the 8.3x 10-year multiple for EURN,” Dounis adds.

Capital allocation
Dounis praises management’s use of capital in recent years, citing the timely acquisitions of VLCCs in 2014. Management was able to grow the VLCC fleet by four vessels without diluting shareholders or impacting the company’s 80 percent net income dividend distribution policy. Dounis believes that shareholders should feel good about this type of leadership moving forward.

Outlook
Dounis is bullish on Euronav in coming years and sees significant upside to share price on top of the stock’s robust dividend yield. UBS initiates a Buy rating on Euronav ad a $18.50 price target for the stock.