Danaos Q3 Update ($DAC)

Danaos was introduced in this post.

Danaos had a strong quarter and booked $308M in new contracts, worth $15.78 in revenue per diluted share. Since my conservative valuation pessimistically assumes that unchartered ships still incur operating expenses, most of this added revenue flows straight through to the DCF valuation. This update boosts my conservative valuation from $115 to $125.

Not only is it impressive that the valuation went up 9% in a single quarter, but it’s also impressive that they got several charters on very old vessels. The backlog chart shows new charters on 27-28 year old ships extending into mid-2026 at profitable rates around $21,000 per day versus average operating and voyage expenses of $8063/day. My model conservatively assumes that any unchartered vessels older than 20 years of age go to scrap, so these charters are going beyond expectations and really show how strong the market is currently. I wouldn’t count on this lasting too long, but for every quarter it does last it’s great news for Danaos.

In the earnings call, management said “Actually, we have even increased further our contracted revenue since getting this release out quite substantially.” It sounds like we may get another valuation boost in Q4.

When asked about more newbuildings management said “we're going to wait for, let's say, for this kind of to cool down… If we see prices coming back again, retracting, we will definitely be there to take advantage.” It’s good that they are pausing newbuildings and purchases, but this is a reminder that they do intend on spending your money on long-term investments rather than distributing the windfall profits, in keeping with the pattern so far. If they invest wisely this could be value-accretive, but to reiterate my point in the last article, this means shareholder returns get spread further into the future and there is more uncertainty and it requires more trust in management. I believe this is the main reason the stock trades cheaply.

Buybacks were a paltry $6.3M in Q3 with an additional $17.8M so far in Q4. It’s good to see the pace picking up, but this is still lower than I would like to see. There was also a small dividend increase from $0.80 to $0.85 per share per quarter, which is likely indicative of an incremental boost to management’s confidence coming with the increased charter coverage.