On Nov. 4, Eagle Bulk Shipping EGLE reported third-quarter results that trailed our assumptions. With several contracts renewed at less-than-expected daily freight rates, the firm's revenue declined precipitously from that of the previous quarter. Moreover, given the company's high amount of fixed costs, operating profitability sunk an even greater amount. Nonetheless, the company's planned fleet expansion during the next two years should generate sizeable top-line gains, and we expect the firm to renew short-term contracts at higher rates given the recent rebound of industry pricing. Although we also believe that Eagle may again turn to equity markets to offset debt it will take on to fund its new building program, we're maintaining our fair value estimate.

Furthermore, as outlined in our notes for fellow dry-bulk ship operators Excel EXM and Genco GNK, we remain concerned that a large supply of oncoming newly built vessels industrywide will drive dry-bulk pricing downward. In fact, we estimate that even if the remainder of 2009's planned vessels and 40% of orders slated for 2010 never hit the water, the industry would still face difficulty absorbing the scheduled new capacity during the next year. Although Eagle has generally protected itself from this potential weakness with fixed-rate contracts, several of its current and oncoming ships operate on the riskier spot market. As such, we continue to reiterate the uncertainty that surrounds our fair value estimate.

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