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A number of tanker stocks are well positioned to benefit from the fallout from the disruption to Red Sea shipping caused by the Houthi attacks on cargo ships, according to Evercore ISI.

“It appears only a black swan event could overwhelm what is an incrementally strong supply/demand backdrop for the industry… and the current black swan in the form of Red Sea diversion is more likely to add upside,” wrote Evercore analyst Jonathan Chappell, in a note released Wednesday. “Capacity adds remain muted well into 2026, and despite macro fears, oil demand projections continue to increase. Utilization is pegged to move higher in the next two years, driving further rate and stock upside.”

As a result of the attacks, some major shipping companies have re-routed their ships to travel around the Cape of Good Hope in South Africa, which results in a longer voyage. But Evercore sees the unfolding scenario as benefitting tanker stocks.

Related: UPS ‘a good value proposition’ for shippers amid Red Sea attacks, says T.D. Cowen

“It has been this evolving situation, rerouted ships, skyrocketing insurance, and uncertainty regarding the duration to the disruption that has helped tanker stocks catch a bid that finally narrowed the large valuation gaps at which most equities were trading throughout 2023,” wrote Chappell. The analyst also noted the recent strength in the tanker stocks, which are up 1 to 33% and 14% on average over the last three months. The S&P 500 index
is up 16.8% over that period.

Set against this backdrop, Evercore raised its price target for Ardmore Shipping Corp.
and Scorpio Tankers Inc.
which skipper petroleum-product tankers, to $20 from $18 and to $89 from $80, respectively. The analyst firm also raised its target for crude-oil tanker company DHT Holdings Inc.
to $14 from $13 and increased its price target for tanker group Frontline PLC
to $29 from $24. Shipping company Nordic American Tankers Ltd.’s
price target was increased to $5 from $4.50 by Evercore and tanker operator Teekay Tankers Ltd.’ s
price target was raised to $77 from $65. Evercore raised its price target for Danish tanker owner Torm PLC
to $42 from $38. Evercore has an outperform rating for Ardmore, DHT, Frontline, Scorpio Tankers, Teekay Tankers, and Torm, and an in line rating for Nordic American Tankers.

“Headline-risk notwithstanding, we believe a seasonal pullback in rates and some minor risk to 4Q EPS and 1Q ‘guides’ could result in near-term profit taking,” the analyst added. “As such, we’d pause on adding to positions through February before becoming more aggressively long in the spring.”

Related: Fallout from Red Sea attacks could boost this sector’s margins, says T.D. Cowen

The 2-year fundamental outlook for tanker stocks remains robust, according to Evercore. “As we also roll our price targets to yearend 2024 NAVs [Net Asset Values], there still appears to be material upside across the group.”

“The fundamentals for the tanker sector remain robust through 2025, at least, and any headline risk that could potentially derail that outlook is effectively impossible to predict,” Chappell added. “So long and strong is the way to think about the group over the next 12 months.”

The attacks by Houthi rebels, who control much of Yemen, have prompted a U.S. led-coalition to launch air strikes against the group. On Wednesday U.S. forces conducted strikes against two Houthi anti-ship missiles that were aimed into the Southern Red Sea and were prepared to launch, according to the U.S. military’s Central Command.

Related: Shipping stocks rise as latest Houthi attack thrusts dry bulk fleet into the spotlight

The Red Sea is a critical shipping lane for cargo traveling through the Suez Canal. Approximately 12% of global trade and 30% of global container traffic traverses the Suez Canal, transporting $1 trillion of goods per annum, the government of New Zealand reported in 2021.

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