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Star Bulk Strengthens Position With Share Buyback: Analyst Highlights Healthy Dry Bulk Market Outlook

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JefferiesΒ analyst Omar Nokta reaffirmed aΒ Buy ratingΒ on Star Bulk Carriers CorpΒ SBLKβ€˜s shares, setting a price target of $22.

Star Bulk recently entered into a Repurchase Agreement with OCM XL Holdings, LPΒ (Oaktree Shareholders). Under the terms, Star Bulk will acquire 10 million of its own shares from Oaktree Shareholders at $18.50 per share.

The deal will reduce Oaktree’s long-term stake in Star Bulk from 25.2% to 17.2%, resulting in a reduction of Oaktree’s Board representation from three seats to two.

To fund the buyback, Star Bulk plans to primarily use proceeds from previous ship sales. Earlier, the company had agreed to sell six older ships for approximately $110 million, according to the analyst.

The buyback is expected to have a significant positive impact on earnings per share (EPS). As a result, the analyst has raised the EPS estimate for the fourth quarter of 2023 from $0.70 to $0.74 and for 2024 from $3.28 to $3.60.

Despite a slight increase in leverage ratio due to the buyback, Star Bulk maintains a strong financial position, stated the analyst. Prior to the transaction, the company’s net debt-to-fleet value ratio was 23.5%, which is projected to rise to 30% post-transaction.

The analyst anticipates a significant narrowing of the spread between newbuilding prices and secondhand values, indicating an improving dry bulk market. With a low orderbook, a healthier dry bulk market is on the horizon, the analyst added.

In conclusion, the analyst considers the share buyback accretive to both EPS and NAV. This transaction further underscores Star Bulk’s robust balance sheet and overall financial flexibility.

Price Action: As of Friday, SBLK shares were up 4.13% at $18.40.

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