The shipping industry has been in focus lately, with supply chain concerns ramping up amid geopolitical conflicts centered around Houthi rebels in the Red Sea. Against this backdrop, investors are eyeing shipping stocks - and among the group, Global Ship Lease (GSL) stands out for its juicy dividend yield and bargain-priced valuation.
Plus, analysts have handed out their top rating on this high-yield industrial pick. Despite choppy waters for shipping stocks, it's worth taking a closer look at this income stock to see what analysts expect next.
How Is GSL Stock Performing?
Global Ship Lease is a big player in the containership game, leasing out its fleet to trusted shipping liners for the transport of goods across different routes. The broader market for shipping stocks has shown signs of recovery, with many stocks in the sector experiencing a bounce back from previous declines.
GSL stock is up 9.3% over the past 52 weeks, underperforming the broader equities market.
However, GSL is currently priced at a bargain. The company's forward price/earnings multiple stands at 2.41, significantly lower than the industrial sector median. GSL's price/sales ratio of 1.12 and price/book ratio of 0.64 are also well below sector medians, as is the price/cash flow multiple of 1.94x.
Furthermore, Wall Street analysts forecast GSL's forward revenue growth at 13.9%, with EPS growth expected at 20.8% - again, well above its industrial sector peers. The stock is priced at a discount, given the expected growth.
Speaking of financial performance, GSL has exceeded consensus earnings expectations in each of the past 4 quarters, buoyed by its contractual coverage. As an owner and lessor of vessels, it avoids the volatility of spot shipping prices. Instead, GSL relies on long-term charters, which have an average of 2.7 years remaining. That strategic positioning helps buffer GSL from the ups and downs other shipping firms face.
The company grew its Q3 2023 revenue by 24% year-over-year, surpassing estimates, while most competitors posted single-digit declines.
Plus, GSL has even been leveraging artificial intelligence (AI) across their fleet to rein in costs. They've started upgrading their ships with new technologies that automatically monitor energy use and emissions, and facilitate operational optimization alongside proactive maintenance.
GSL: A Top Stock for Yield Hunters
For dividend hunters, Global Ship Lease looks like a prime catch. This shipping stock dishes out a quarterly dividend of $0.38, which translates to a dividend yield of 7.13% - a haul far bigger than what most S&P 500 Index ($SPX) companies pay out. It also beats out fellow heavy hitters in the shipping sector like Costamare (CMRE) and Eagle Bulk Shipping (EGLE), which yield in the 2.5-4% range.
Now a 7%+ yield will sound sweet to anyone. But what about GSL's ability to afford those payments? Well, the company only pays out 17% of its earnings as dividends. That low payout ratio leaves plenty of leftover cash to plow back into growing the business.
What Do Analysts Expect for GSL Stock?
Analysts are pretty bullish on Global Ship Lease, though it should be noted the coverage is relatively light, with only two analysts tracking the shares. That said, they give it a unanimous “strong buy” recommendation, with the mean price target of $31.50 suggesting expected upside of more than 50% from Friday's close.
When GSL reports its next quarterly earnings on March 6, these analysts are betting on GSL to report EPS of $2.34 for Q4 2023, marking a solid 9.35% increase over the same quarter last year.
For the full fiscal year 2024, analysts foresee GSL's earnings hitting $9.15 per share, up 3% from expected 2023 levels.
Why GSL Stock Is a Buy Right Now
So there you have it - shipping stock GSL brings a lot to the table that should catch any investor's eye. With a robust track record of beating earnings estimates, a high dividend yield, and a rock-bottom valuation, GSL looks compelling at current levels.
While the tides of the shipping market may still have some chop ahead in 2024, this is one ship that looks ready to sail through smoothly. For investors seeking an undervalued play with income, growth, and upside potential, GSL checks all the boxes.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
