Sell!

Equity analysts at JP Morgan are the latest to adopt a gloomy view of the tanker market, slashing ratings, price targets and earnings estimates in a nine-page report today that might be crystallised in a single word: sell!

Senior analyst Jonathan B Chappell and colleague Darren T Hicks are essentially advising investors to get out while the getting's good, saying trading levels of public tanker stocks don't yet fully reflect how bad things are going to get in the next two quarters. Alternatively, they advise new investors may want to secure "short" positions to take advantage of the coming decline in share prices.

Downgraded are Tsakos Energy Navigation (TEN) from hold to sell, and giants Teekay Corp of Canada and Overseas Shipholding Group (OSG) of New York from buy to hold, but nearly every tanker company under JP Morgan's coverage sees earnings estimates and price targets cut for 2009 and 2010. What may be more scary is what the analysts have to say about the macro tanker market.

"In addition to the lower earnings and cash flows that will likely result from plummeting spot rates, tanker asset values, estimated to be down 25-33% already from summer highs, may face further near-term declines as return expectations are adjusted downward, which could hurt equity valuations and even potentially lead to some debt covenant breaches," the analysts write.

Punished by significant demand destruction in the world econmic funk and minimal scrapping to abate oversupply, rates weakness will continue through at least the third quarter, "potentially driving the first meaningful quarterly losses at some tanker companies since 2002."

Charter-oriented companies best suited to weather the storm are buy-rated Capital Product Partners, General Maritime, Double Hull Tankers and Ship Finance International, while the biggest potential downside looms for spot-exposed Nordic American Tankers, Frontline Ltd and Knightsbridge Tankers, all rated sell.