Why A 5-Ship Deal Is Reinforcing This Danaos Analyst's Bull Case

A deal involving the acquisition of five ships has furthered a Jefferies analyst's bullish sentiment on Danaos Corp. DAC.

The Danaos Analyst: Randy Giveans reiterated a Buy rating on shares of Danaos, increasing the firm’s price target from $87 to $90.

The Danaos Takeaways: Danaos announced that it exercised its option to acquire the remaining 51% stake in JV venture Gemini Shipping Holdings for $117.3 million, Giveans said in a Friday note.

The deal grants Danaos full ownership of five container ships that are expected to generate $117 million in EBITDA over the next three to four years, and it's immediately accretive to third-quarter earnings, the analyst said.

“This is a very prudent use of cash,” as the vessels are valued at $210 million, with an estimated scrap value of $50-$60 million upon retirement, he said. 

Despite taking on $45 million in debt to complete the deal, Danaos will likely maintain well over $200 million in cash on its balance sheet, according to Jefferies.

In addition, Danaos owns 8.2 million shares of ZIM Integrated Shipping Services Ltd. ZIM valued at around $335 million, which are expected to provide a $2/share dividend in September and a $5-$9/share dividend in the first quarter of 2022, Giveans said.

Danaos is expected “to use its impressive balance sheet in the future to make additional acquisitions,” the analyst said. 

DAC Price Action: Shares of Danaos Corp. were trading 0.57% higher at $75.23 Friday.