Seeking Alpha
Long only, deep value, growth at reasonable price
Profile| Send Message|
( followers)  

Rise of the fracking industry has also given rise to some supplementary industries, and environmental services is one of these industries. Heckmann Corporation (HEK) has benefited heavily from this opportunity and with the help of aggressive acquisition strategy, the company has established itself as one of the leading players in the sector. Fracking, the procedure of extracting oil and gas from rocks by horizontal fracturing, has allowed the companies to reach oil and gas deposits, which were not accessible before. However, fracking has also raised some concerns about the environment. As a result, environmental services companies like Heckmann stand to benefit from the opportunity.

The company is focused on total water and wastewater solutions for oil and gas exploration in different shale plays. Heckmann offers water delivery and disposal, trucking, fluids handling, treatment, temporary and permanent pipeline facilities, and water infrastructure services for oil and gas exploration and production companies.

Power Fuels plus Heckmann Corporation is equal to Profits

As I mentioned above, the company has been following an aggressive acquisitions strategy to increase its footprint in the market. However, the most significant transaction was the merger with Power Fuels. The merger expanded the operations of the company considerably, and also provided some diversification to revenues. Merger with Power Fuels gave a Heckmann strong footing in the leading shale oil basin, Bakken Shale. Furthermore, the merger increased the exposure of the company to liquids, which is a less volatile segment.

Heckmann recently reported earnings, and we can already see the impact of the merger. The company beat analyst estimates about the top line as well as bottom line. Analysts were expecting the company to report a loss of $0.02 per share on revenue of $107.99 million. However, Heckmann reported a profit of $0.02 per share on revenues of $113.2 million. The company grew revenue by 124% and adjusted EBITDA by 116% over the last year. At the end of 2012, revenues stood at $352 million and EBITDA was $61.6 million.

At the moment, the total debt of the company stands at$566.1 million. Over the past year, Heckmann's debt has gone up substantially due to acquisitions. Total debt includes $400 million of senior-unsecured notes and $147 million drawn from the credit facility to complete the Power Fuels acquisition. Cash and cash equivalents currently stand at $16.2 million. The results included results of only one month (December) from Power Fuels, and nine months of TFI. Adjustments to EBITDA were mainly transaction costs for acquisitions and mergers, accruals, loss on equipment sales and impairment. Future earnings can be expected to be even better without time acquisition and merger charges.

There was a decline in drilling activities by oil and gas companies during the fourth quarter of the year. The decline was seasonal and the company adjusted by decreasing the capital expenditures budget. Heckmann spent $9.9 million in net capital expenditures (net of cash from asset sales) during the fourth quarter.

Future Outlook and Growth Opportunity

Heckmann more than doubled its revenues over the past year, and the guidance for the next year shows that the company expects to again double its revenues. Heckmann expects the revenues for 2013 to be between $750 and $825 million, and adjusted EBITDA to be between $200 and $220 million. Furthermore, the capital expenditures for the company are expected to be between $90 and $110 million. The next year will have full year revenues from Power Fuels and TFI, which have the capability of doubling the total revenues of Heckmann. Furthermore, fracking activities will again increase during 2013 due to an increase in oil prices. As a result, Heckmann's revenues will increase, and I believe the company will be able to meet its guidance.

As I mentioned above, the company is operating in rapidly growing industry, and heavy investment from oil companies in the sector will ensure the growth continues. Heckmann follows a strong strategy of focusing on the needs of its customers, which sets it apart from its competitors. The company also announced a proposed name change to "Nuverra Environmental Solutions", and the company will adopt "NES" as its ticker symbol.

Conclusion

There are very few companies in the market with such growth potential and financial strength. If Heckmann is able to meet its guidance during 2013, then there will be a substantial increase in the stock price. As a result of an aggressive acquisitions strategy, the company has positioned itself nicely to dominate the market in years to come. At the moment, the company is one of the leading players in the market. I believe Heckmann has the potential to be a solid long-term investment. If the revenue and earnings growth continues, the stock price may also double over the next year.

Source: Heckmann Corporation Is Set For Future Growth