FBR identifies ‘cash cow’

An analyst at FBR Capital Markets is urging clients to accumulate shares of Matson based on a bet that its share price could double in the coming years.

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In an alert issued Monday morning John Mims upgraded the Jones Act carrier’s New York-listed stock from “market perform” to “outperform” and raised his 12-month price target to $30.00, which represents an increase of $2.00.

“We believe Matson should be bought now . . . our new price target implies 30% upside in 12 months, but the stock is likely an easy double this cycle,” he said. “Matson has quietly emerged as the most compelling value, GARPy, yield-focused name in our coverage universe.”

Mims argued that the company enjoys “unassailable market dominance and a considerable five-year runway for volume growth” in the Jones Act container trade and boasts what he described as a “game-changing market catalyst with the launch of new vessels this cycle”.

“With the growth and margin opportunities we foresee over the next five years, we believe Matson’s peak earnings will surpass $3.00 this cycle and the stock will likely trade into the $50 to $60.00 range,” he added after applauding a free cash flow yield of more than 10%.

Mims acknowledged that Matson’s share price has suffered as a result of lingering concerns that it lacks near-term catalysts and may face competitive headwinds when Pasha launches a Jones Act ro-ro later this year well but urged clients to focus on the bigger picture.

“These [concerns] are fully priced into the stock at current levels, however, and any investor with a 2+ year time horizon should begin building positions now as any positive momentum in the coming quarters will likely drive significant momentum in share price,” he wrote.

Shares of Matson, which is based in Hawaii where it oversees a fleet of 18 boxships and con-ros in addition to other assets like containers, container chassis and generators, barges, terminals and a logistics business, rose 3.73% to $24.46 in midday trading on Wall Street Monday.

The carrier made TradeWinds headlines last year when it inked a contract to construct a pair of 3,600-teu containerships at Aker Philadelphia Shipyard. As we reported the duo, which will likely be equipped with dual-fuel power systems, is due for delivery in 2018.