This Oil Tanker Stock Could Rally More Than 40%, According To JPMorgan

According to JPMorgan, there is a chance to buy Scorpio Tankers shares.

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The oil tanker operator was given an overweight rating by analyst Samuel Bland, who claimed it had a promising future.

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Bland stated in a letter on Wednesday that the group's prospects were "undergoing a significant inflection," transitioning from dismal profits and overleverage to high earnings and quick deleveraging, with a potential [free cash flow] yield of c.30%. We believe that the share price will rise materially as a result of our reasons for believing that the next two years will be strong.

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Scorpio Tankers shares have risen 12% this year, after a gangbusters 2022 where they climbed more than 300% — bolstered by the spike in energy prices.

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According to the analyst's $87 price objective, shares may increase by another 44% from Tuesday's closing price. In premarket trading on Wednesday, the oil tanker stock increased by 2.1%.

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Notwithstanding the fact that capacity and supply are still at record low levels, Bland anticipates continued robust demand for seaborne trading in oil products. In the meantime, restrictions on Russian exports may increase the ton-miles traveled by oil tankers in terms of the quantity and distance of the goods they transport.

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The orderbook/fleet is at a historically low level of 5-6%, and there is a good chance that it will get worse in the medium future. In contrast to the 28% demand growth above, our supply and demand model predicts that the fleet will grow by 11% between 2018 and 2025, which will cause a significant mid-term tightening in the market, according to Bland.

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Scorpio Tankers' historically heavy cash leverage is undoubtedly a danger, but the analyst pointed that the company is rapidly deleveraging.