Is Nordic American Tankers (NAT) a Buy or Sell?

PUBLISHED Feb 7, 2025, 3:52:59 PM        SHARE

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When considering investing in Nordic American Tankers (NAT), it's crucial to analyze the financial health and market performance of this small-cap company. NAT, with a market capitalization of $518 million, trades at $2.48 per share and has 209 million shares outstanding. This Bermuda-headquartered company, incorporated in 1995, specializes in acquiring and chartering double-hull tankers, operating a fleet of 20 Suezmax crude oil tankers.

Financial Overview

To determine if NAT is a buy or sell, we evaluate its financial performance by estimating free cash flows into the future and discounting those figures to today's value.

Free Cash Flow

Free cash flow (FCF) is calculated as cash flow from operations minus capital expenditures. NAT experienced negative FCF in 2021 and 2022 but showed a positive FCF of $66 million in 2023, which dropped to $43 million in the trailing twelve months (TTM).

Net Income

Net income, the profit or loss on the income statement, is revenue minus expenses. NAT reported a significant negative net income in 2021, a positive figure in 2022, and nearly $100 million in 2023. However, net income declined to $63 million in the TTM.

Revenue

Revenue, representing total sales, increased from $190 million to $390 million but decreased to $367 million in the TTM.

Dividend and Financial Sustainability

NAT pays a substantial dividend of 15%, but it can only cover 60% of this payment, indicating the possibility of dividend cuts or increased debt to sustain these payouts.

Valuation

We estimated four years of future free cash flows and a terminal value for all cash flows beyond year four, totaling $857 million. Discounting these figures using the weighted average cost of capital gives us a company value of $757 million. Dividing this by 209 million shares results in a calculated stock price of $3.62. Since NAT currently trades at $2.48, it presents a 32% discount, making it a potential buy according to our model.

Industry Comparison

In comparison to 45 companies within the same industry, NAT's capital expenditures are relatively low at $76 million, especially when compared to giants like TC Energy ($5 billion) and Enbridge, a Canadian company, at $4.2 billion.

Conclusion

Based on our analysis, NAT appears to be undervalued and presents a buying opportunity according to our model. However, investors should consider the financial sustainability of its dividend and the potential risks involved.

Do you think NAT is a buy or a sell? Let me know in the comments!

https://youtu.be/bRc9P5Q9uoY?si=5Q7RB-zcKyzSuwP5

**POSITION UPDATE**

NAT, Buy

Nordic American ...
Return: 8.61%

NAT, Buy

Return: 8.61%


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