After the close on Monday, Heckmann Corporation (HEK) reported Q4 2012 results that were generally better than the worst-case scenarios presented by analysts. The stock shot up 10% in after-hours based on the positive guidance. As highlighted a few weeks back (see Heckmann Unreasonably Hammered By Downgrades), the investment community had become unreasonably negative on the stock.
The company is a leading environmental services provider dedicated to the movement, treatment and disposal of water generated by energy companies involved in the production of oil, natural gas liquids and natural gas.
The game-changing merger with Power Fuels (see Heckmann Makes Game-Changing Merger) has finally been included in the numbers and guidance. Unfortunately, the market turned so weak in Q4 that the benefits won't completely shine through until the 2nd half of this year.
Q4 Earnings Highlights
The company provided the following highlights for Q4 2012:
- Fourth Quarter Revenues of $113.2 Million.
- Adjusted EBITDA of $14.7 Million (Includes One Month of Power Fuels Financial Results).
- Company to Rename Itself and Integrate Business Units Under New Brand: Nuverra Environmental Solutions.
Most importantly the quarterly results only included one month of numbers from Power Fuels. The key to the trading action in this stock will naturally be how well the market takes the guidance that business is starting to pick up with an expected strong 2nd half of the year.
Guidance is always crucial to how a stock reacts, but in the case of a merger, guidance is extra important. The company provided the following numbers for 2013:
- 2013 revenues to be between $750 and $825 million.
- Adjusted EBITDA to be between $200 and $220 million.
- Capital expenditures in 2013 to be between $90 and $110 million.
- Forecasts both revenues and Adjusted EBITDA to be back-half weighted, as 2013 activity ramps up from the 2012 slowdown and inclement weather impacted activity in the first several months of 2013.
These numbers are generally better than the average analyst estimate and especially better than the dire expectations. The stock should get a lift, as the company is sure of an activity ramp as 2013 progresses. High oil prices will eventually lift demand as exploration companies have adjusted budgets going into this year.
Introducing Nuverra Environmental Services
With Richard Heckmann stepping away from the CEO position and the combination of equal firms, it shouldn't be too surprising to see a major name change. Heckmann doesn't exactly distinguish the business to those not familiar with it.
In the investor presentation, the company provided some detail info on the reason for the change and the logic behind the selection. First, the combination of Heckmann, Power Fuels, and Thermo Fluids under one name will present a more complete front to the major firms. Second, the name represents the new era of sustainable solutions for protecting earth and the terrain. Clearly a logical and well thought out concept, whether it really matters to customers is a different story.
Based on the name change, the company hopes to begin trading under ticker symbol "NES" when the market opens on Monday, May 13, 2013.
With approximately 250M shares outstanding, the stock has a valuation of nearly $1B if the after-hours trading at $4 holds. The revenue runrate could exceed $800M providing a compelling valuation with the company set up for strong growth in the next 5 years. Earnings estimates are dropping, but the determining factor of success will be whether the natural gas drilling market returns. With natural gas inventories solidly within the 5-year average, Heckmann could be set up for solid growth in 2014 as shale drilling in the US will need to pick up to meet growing demand from industrial and fueling industries.
At less than 5x EBITDA estimates, the stock trades at very compelling levels for a growing firm.
The long-term demand for water service in shale drilling should only increase. The analyst downgrades were too short sighted and miss the point of this company that will improve based on the end markets rebound.
Along with C&J Energy (CJES), the company has made several aggressive moves that place the companies in a better situation as the US strives for energy independence. Both stocks should be purchased on dips, as the positioning that took place in 2012 will help as the activity ramps in 2013. Neither stock has had much love over the last couple of years, but the tide could be changing, now that the calendar has changed.
Disclosure: I am long HEK, CJES.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.