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Cantor Upgrades DryShips (DRYS) To ‘Buy’ From ‘Hold’

January 25th, 2010 Michael McDonough

From Cantor Report:

Cantor/DRYS: We Upgrade DRYS To BUY (From HOLD) On Valuation, Rig Exposure

* We raise our price target to $8 (from $7) based on our 7.0x
EV/EBITDA multiple to our new 2010 EBITDA forecast of $558 million
(from $544 million). Given the discrepancy between our target and
the current stock price, we upgrade DRYS to a BUY (from HOLD). Our
price target is also supported by our charter-adjusted NAV of
$7.80 per share.

* With nearly all of its dry bulk fleet fixed under period charter
contracts, we suggest the primary upside catalyst for the stock
over the near-term will be securing employment and financing for
the 5th and 6th drilling rigs.

* We raise our 4Q:09 EPS estimate to $0.27 (from $0.26). For 2010,
we now look for DRYS to report EPS and EBITDA of $1.05 and $558
million (from $1.00 and $544 million), respectively. Finally, we
introduce our 2011 EPS and EBITDA forecasts of $1.22 and $743
million, respectively.

* Our new estimates are based upon our revised dry bulk rate
forecast (see “The Ship’s Log – 4Q:09 Review and 2010 Outlook”)
published concurrently with this note.

* Management has stated its intention of growing the dry bulk fleet
through potential distressed transactions over the near-term, with
a focus on the Panamax and, to a lesser extent, Capesize vessel
classes. However, we believe the primary focus will be on fixing
drilling rigs 5 and 6 under charter contracts, as those charters
will likely be necessary before bank financing can be secured.


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