The share prices of Teekay and OSG are still projected to increase significantly.
Frontline has suffered the embarrassment of a downgrade to "Sell" from a respected New York analyst, the same day as he maintained "Buy" ratings on Frontline"s two major trade rivals, Teekay Corp and Overseas Shipholding Group.
A fear that John Fredriksen"s hitherto generous dividend-generating company might eliminate dividends altogether this year has been factored into the downgrade.
Urs Dür, of Lazard Capital Markets, said in a research note that Frontline"s heavy capital expenditure requirements, of $1.4bn, colliding with a relatively dampened outlook for freight rates for 2009 as a whole has sparked the rethink.
Lazard said: ?Of the $1.4bn capital expenditure needs, we estimate that $800m still requires cash or financing. Given the state of the credit and capital markets and the company"s financing needs, we think that it is unlikely that the dividend will improve this year and it may well be eliminated.
?We see the shares declining absent a marked improvement in the freight, capital, and credit markets.?
Accordingly, Lazard"s price target on Frontline has been adjusted to $16, compared with the current price of $22.34.
Lazard has also run the rule over Teekay and OSG, but in stark contrast to Frontline, the share prices of these two companies are still projected to increase significantly.
OSG"s price target has come down to $60 from $70, compared with the current price of $27.04, with the "Buy" rating intact. Healthy freight rates and OSG"s $1.5bn war chest of cash and debt liquidity is a main reason for the optimism.
Teekay"s price target is down to $30 from $48, compared with the current price of $16.54, and the "Buy" rating stays in place.
Again, Teekay"s $1.8bn liquidity, heavy contract coverage and a solid freight market are the reasons behind Lazard"s buoyancy towards the tanker major.
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