DryShips Inc. (NASDAQ: DRYS)

DryShips Inc. (DRYS) owns, through its subsidiaries, a fleet of 40 drybulk carriers comprised of seven Capesize, 29 Panamax, two Supramax, and two newbuilding drybulk vessels, as well as two ultra-deep-water semi-submersible drilling rigs and two ultra-deep-water newbuilding drillships. The Company’s drybulk fleet carries a variety of drybulk commodities including coal, iron ore, and grains, bauxite, phosphate, fertilizers and steel products. DRYS employs its drybulk vessels under period time charters, on bareboat charters, in the spot charter market and in drybulk carrier pools. Its subsidiaries include Ocean Rig ASA, DrillShips Investment Inc. and Primelead Shareholders Inc.

The Company was founded in 2004 and is based in Athens, Greece.

Source: Reuters.com, SEC Filings.

Financial Summary

The Company recorded a net profit of $35.6 million, or $0.12 basic and diluted profit per share for the three-month period ended September 30, 2009, as compared to a net profit of $180.0 million, or $4.13 basic and diluted earnings per share for the three-month period ended September 30, 2008. EBITDA, which is defined and reconciled later in this press release, was $104.8 million for the third quarter of 2009 as compared to $258.5 million for the same period in 2008.

Included in the third-quarter results is a loss of $39.3 million or $0.15 per share associated with the valuation of the Company’s interest rate swaps. Excluding this item, net income would amount to $74.9 million or $0.27 per share.

Basic earnings per share for the third quarter of 2009 include a non-cash accrual for the cumulative dividends on the Series A Convertible Preferred Stock, amounting to $4.0 million, which reduces the income available to common shareholders.

For the drybulk carrier segment, net voyage revenues (voyage revenues minus voyage expenses) decreased by $113.4 million to $114.8 million for the three-month period ended September 30, 2009, as compared to $228.2 million for the three-month period ended September 30, 2008. The decrease is attributable to the substantially lower freight market during the third quarter of 2009 as compared to the third quarter of 2008. For the offshore drilling segment, revenues from drilling contracts amounted to $107.6 million for the three-month period ended September 30, 2009, as compared to $88.1 for the same period in 2008.

Total vessel and rig operating expenses and total depreciation and amortization decreased to $56.2 million and $49.4 million, respectively, for the three-month period ended September 30, 2009, from $58.3 million and $50.4 million, respectively, for the three-month period ended September 30, 2008. Total general and administrative expenses decreased to $22.9 million from $27.8 million during the comparative periods.

Interest and finance costs net of interest income decreased to $16.3 million for the three-month period ended September 30, 2009, compared to $27.4 million for the three-month period ended September 30, 2008. This decrease is primarily attributable to decreased average interest rate levels during the three-month period ended September 30, 2009, as compared to the same period in 2008.

Source: Reuters.com, SEC Filings.

Analyst Consensus

This is the consensus forecast among 15 polled investment analysts. Against the DryShips Inc. company.

The 11 analysts offering 12-month price targets for DRYS have a median target of 8.00, with a high estimate of 11.00 and a low estimate of 5.00. The median estimate represents a 35.14% increase from the last price of 5.92.

Source: www.ft.com

Consensus Estimates Analysis

Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=DRYS.O

Investment Highlights

DRYS in early December said it has terminated an agreement to buy two Panamax vessels as it could not get a period employment contract for the vessels within the agreed timeframe with the sellers. According to the Company, the agreement was terminated at no cost to the Company. Panamax vessels are the second-largest type of dry bulk ships and their name is derived from their ability to pass through the Panama Canal.

DRYS in late November announced that in connection with its previously announced offering of $400 million aggregate principal amount of convertible senior notes due 2014, the underwriter has exercised in full its over-allotment option granted by the Company and has purchased an additional $60 million aggregate principal amount of convertible notes on the same terms on which the $400 million convertible were sold to the underwriter. The Company also announced that the closing of the convertible notes offering and the over-allotment option took place simultaneously today. Accordingly, $460 million in aggregate principal amount of convertible notes have been sold by the Company to the underwriter, resulting in aggregate net proceeds to the Company of approximately $448 million. Deutsche Bank Securities Inc. acted as the sole book-running manager for the offering. Concurrently with the offering of the convertible notes, the Company delivered 26.1 million shares of its common stock to Deutsche Bank AG, London Branch (“Deutsche Bank AG”) pursuant to a share lending agreement. Deutsche Bank AG or its affiliates intend to sell shares of the Company’s common stock that they are entitled to borrow from the Company under the share lending agreement. These shares were offered in an underwritten offering registered under the Securities Act of 1933, as amended, pursuant to the Company’s existing shelf registration statement in order to facilitate hedging transactions undertaken by the purchasers of the convertible notes. The Company did not receive any of the proceeds from this sale of common stock but received a nominal lending fee from Deutsche Bank AG under the share lending agreement.

Source: http://www.dryships.com/

Technical Analysis

Source: http://stockcharts.com

DRYS is below its 50-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

DRYS is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

The MACD for DRYS currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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