Euronav, Scorpio Still Best-In-Breed Tankers: Credit Suisse

• Tanker rates experienced extreme volatility in Q3, but finished the quarter on a high note.
• With rates currently near $100k/d, Credit Suisse believes upward Q4 tanker earnings revisions are coming soon.
• Credit Suisse names Euronav NV EURN and Scorpio Tankers Inc STNG as its top picks.

As Q4 kicks off, Credit Suisse analyst Gregory Lewis took a look back at a crazy Q3 for tanker stocks. In a new report, Lewis discusses what happened in Q3, what investors can expect in Q4 and which stocks are Credit Suisse’s top picks.

Volatile Q3

VLCC rates averaged about $50k/d in Q3, but the rate range for the quarter was huge. Rates peaked at about $80k/d in mid-July but dipped as low as about $20k/d in August. MR rates were equally volatile during the quarter.

Despite the volatility, average rates for the quarter were solid, with VLCC rates nearly flat quarter-over-quarter and MR rates up about 10 percent.

Strong Start To Q4

So far in Q4, VLCC rates have averaged about $80k/d and have recently moved close to $100k/d. According to Lewis, VLCC Q4 earnings typically double Q3 earnings over the past 15 years, a trend that he believes could easily continue this year.

“With spot rates at ~$100k and Q3 FFAs pointing to 80k/d we expect upward Q4 earnings revisions,” he explained.

Stock Picks

Credit Suisse names Euronav and Scorpio as its top two tanker stock picks. The firm is projecting a 23 percent operating cash flow yield from Euronav in 2015 and a 20 percent yield from Scorpio.

Credit Suisse also has Outperform ratings on Tsaskos Energy Navigation Ltd. TNP and Navios Maritime Midstream Partners LP NAP.

Disclosure: the author holds no position in the stocks mentioned.