Mish Po’s recent stake in Danaos Corporation—currently a small position—stands out given his concentrated investment style. Every decision reflects his belief in an opportunity’s potential. This article applies a seven-step analysis to understand why he invested in a stock overlooked by peers since David Einhorn exited in 2009.
Company Overview
Danaos is one of the world’s largest container ship owners, operating a fleet of 68 vessels and recently expanding into 10 bulk carriers. Unlike competitors, Danaos focuses solely on leasing, simplifying operations with just four full-time employees and a $1.6 billion market cap. A $1,000 investment a decade ago would now be worth $1,126—including $99 in dividends—reflecting a 12.6% gain.
Ownership Structure
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Insider Control: Individual insiders own 49.6% of Danaos, with Chairman John Coustas holding 48.3%. This concentration ensures operational focus but risks unchecked decision-making.
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Insider Activity: No recent insider transactions have been recorded.
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Super Investor Stake: Monish Pabrai’s portfolio allocates 1.6% to Danaos, acquired last quarter.
Financial Fundamentals
While some metrics disappoint, others highlight Danaos’ unique business model.
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Return on Invested Capital (ROIC): 4.4% (below 10% target).
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Net Profit Margin: 66.2% (5-year average), vs. industry median of 19.3%—a testament to its leasing model.
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Share Buybacks: Issued 146% more shares in the past decade but repurchased 18.9% since 2021.
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Debt: Long-term debt could be paid off in 2.1 years using 5-year average free cash flow.
Growth Metrics
Danaos’ cyclical nature demands careful historical analysis.
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Revenue Growth: 5.2% (10-year CAGR); 24.9% (5-year CAGR).
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Free Cash Flow Growth: 4.8% (10-year).
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Earnings Per Share (EPS) Growth: 19.8% (10-year); 52% (5-year).
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Dividends: 4.1% yield; payout ratio of 10.5% (low but secure).
Valuation
A discounted cash flow (DCF) analysis—using 5-year average free cash flow—yields:
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Low Scenario: 3% decline (years 1–5), 5% decline (years 6–10) → Intrinsic value: $122 (post-30% margin of safety: $85).
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Medium Scenario: No growth → Intrinsic value: $163 ($114 post-margin).
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High Scenario: 2% growth (years 1–5), 1% growth (years 6–10) → Intrinsic value: $184 ($129 post-margin).
With a current price of ~$80, Danaos appears undervalued.
Risks & Opportunities
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Strengths: Attractive valuation, high profit margins, and diversified revenue from dry bulk expansion.
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Risks:
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Cyclicality: New container ships could lower charter rates.
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Fuel Sensitivity: Dry bulk operations are vulnerable to fuel price hikes.
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Geopolitics: Global tensions disrupt supply chains.
Danaos ranks 18th cheapest among 100+ stocks and boasts the highest profit margins. While its business is solid, investor sentiment hinges on Coustas’ control. Mish Po’s investment likely stems from its undervaluation and structural strengths, though uncertainties persist. Always conduct thorough research before investing.
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