SOURCE: DryShips Inc.

March 16, 2005 18:24 ET

Jefferies Initiates Coverage of DryShips With a Buy Recommendation

BOSTON, MA -- (MARKET WIRE) -- March 16, 2005 -- Jefferies & Co. announced that it picked up coverage of DryShips, a leading provider of international seaborne transportation services for dry bulk cargoes, including iron ore, coal, grain and minor bulks.

DryShips is quoted on (NASDAQ: DRYS) and went public in early February 2005 raising $ 269.1 million.

Based on recent announcements, the company currently owns a fleet of 10 dry bulk carriers and has entered into agreements to purchase an additional 15 vessels, eventually bringing the total fleet to 25 vessels aggregating 2.1 million dwt with an average age of 11 years. As the report states, it is the world's second largest Panamax dry bulk operator.

DryShips, which went public at $ 18 per share on February 3rd, closed at $ 20.10 on Monday, March 14th. Magnus Fyhr, the Jefferies' analyst, set a 12-month target price at $ 30 per share.

The Jefferies report states that the dry bulk sector fundamentals remain attractive given the strong global industrial activity and energy demand, driven by economic growth in China, India and the US and should result in strong dry bulk trade growth over the next few years. In addition, increasing competition for shipyard capacity should limit fleet growth beyond 2008.

DryShips operates a diversified fleet of bulk carriers active with both major and minor bulk trades and is well positioned to take advantage of consolidation opportunities as the dry bulk sector remains highly fragmented.

Furthermore, the company has strong operating leverage with a balanced chartering strategy between spot charters, time charters and pooling arrangements seeking to achieve above average fleet utilization. According to Jefferies, the company's earnings are highly leveraged to improving spot rates, as every $ 1,000 increase in TCE (Time Charter Equivalent) rates adds an estimated $ 0.24 to annual EPS.

Also, as outlined in the report, there can be an attractive dividend yield with potential for extraordinary dividends, as the company plans to pay a quarterly dividend of $ 0.20 per share (a 3.7% yield) starting in July 2005 with potential for additional dividends up to 50% of net income.

According to the report, the company's shares are attractively valued trading at 4.0 times 2006 EPS estimate, 3.1 times 2006 estimated CFPS (cash flow per share), and 4.6 times 2006 estimated EV/EBITDA (enterprise value / earnings before interest taxes depreciation and amortization), a significant discount to the tanker peer group. The analyst believes the discount to the tanker group will narrow as the company's dividend strategy gains visibility in 2005.

The Chicago Board Options Exchange (CBOE) and the American Stock Exchange (AMEX) have recently listed options on the DryShips stock. The DryShips options trade under the symbol DQR. This creates another vehicle through which investors can transact in DryShips' shares.

By Capital Link, March 15th, 2005

PDF version available at http://www.capitallink.com/ppress/ppressfile/23406845/DryShipsMarch1505.pdf

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