BY MARK SEBASTIAN
October 14, 2024
Frontline Ltd is a Cyprus based company that ships crude and refined crude products…you can see why this would be an interesting company right now.
The company runs a tight ship (pun intended)…they have 88 employees and a valuation of 5.6 billion dollars….
The margins are great, on revenue of 1.93 billin dollars FRO made 594 million…thats an almost 31% margin…pretty darn good.]
It pays a really nice dividend of 1.91 a share, that’s almost 8% on great cash flow per share.
If there is a problem with the company it is the amount of long term debt the company is holding…its big
3.4 billion is a lot of debt for a 5.6 billion dollar company….which is why the PE of 9.39 seems reasonable.
The question is how much do they stand to benefit from oil prices increasing…we already know these ships are facing higher risk…meaning those willing to ship are seeing increased margins.
I have to admit I am not an expert on everything, but intuitively a more expensive load that these firms are shipping is going to mean they charge more to deliver it…thus an increase in margins.
If rates continue to pull back and oil prices stay high FROM could be headed for smooth sailing to 30 bucks a share….but Ill let Licia make that determination based on the chart.
I am excited about Frontline (Ticker: FRO) stock as it popped up our Option Shopper Scanner and it follows my pitchfork very well:
FRO topped out at the resistance of the pitchfork back in late May at $29.39, with the change in trend candle the hanging man.
It worked its way down to a low of $21.40 just three weeks ago and has bounced back to $25.90 where it again honored the resistance of the pitchfork.
The stock is now trading in that channel range of $23.89 and $25.68.
I would consider going long here with a tight stop loss of a close below $23.85.
FRO strangely elevated volatility
Normally shipping oil would be not a big deal but longer term IVs are elevated in FRO. The recent two week swing has been up and down with the changing tides in the Middle East. There is some value selling the longer term options with the lower P/E.
90 Day Realized volatility with 90,120 IVs in green
The implied volatility is there for a reason. It has come off some from the highs but the elevated volatility is not going away anytime soon.
Frontline (Ticker: FRO) is one of the world’s leading oil tanker shipping companies, primarily involved in transporting crude oil.
It operates a large fleet of Very Large Crude Carriers (VLCCs), Suezmax, and Aframax tankers.
These vessels are essential for moving crude oil globally, often between major oil-producing regions and refineries or storage hubs.
Oil demand does not seem to be slowing, which will positively impact the stock.
On the other hand, geopolitical risk factors, such as war in the middle east, could hurt supply.
But that is a two-way street.
For example, sanctions on Russian oil have altered global shipping routes, leading to increased demand for longer-haul shipments from non-Russian producers.
When demand for non-Russian crude shipments increase, tanker companies like FRO benefit.
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