Frontline, DHT raised to Buy at Jefferies with oil market shifting favorably

The tanker

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Frontline (NYSE:FRO) +3.7% and DHT Holdings (NYSE:DHT) +4.6% in Thursday’s trading as Jefferies upgrades both tankers stocks to Buy from Hold with respective $30 and $14 price targets, as tankers enter the third year of strong earnings and the oil market balance is shifting further in their favor.

Tanker companies have used the past two years to deleverage and now free cash flow is on the rise, Jefferies analyst Omar Nokta says.

Frontline (FRO) is the largest listed VLCC player and owns a sizable fleet of Suezmaxes and LR2s, and Nokta estimates the company’s FY 2024 free cash flow at $4.10/share and dividend potential at $3.20/share, based on its unofficial 80% earnings payout policy.

DHT (DHT) is a VLCC pure play with a high degree of spot exposure, and the analyst estimates 2024 free cash flow at $2.00/share and dividend potential at $1.80/share, based on the company’s 100% earnings payout policy.

Nokta also reaffirmed Scorpio Tankers (STNG), Teekay Tankers (TNK) and International Seaways (INSW) with Buy ratings and respective $90, $70 and $65 PTs.

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