CSX Not Seeing A Decline In Shale Oil And Frac Sand Demand, Which Is Bullish For U.S. Silica
- CSX reported numbers that show the frac sand industry is not slowing.
- These numbers, along with the positive commentary, are bullish for U.S. Silica.
- WTI prices would have to decline even further and stay that low for the long term to have a serious impact on the firm's 2016 earnings.
Reasons Why I Have Even More Conviction In U.S. Silica
- U.S. Silica is my stock of the year.
- The comments by the CEO of Greenbrier confirm my positive stance.
- I will explain why the stock has recently been outperforming oil prices.
- I will also provide a counter argument to Jim Cramer's negative stance on the stock.
- There has been an increased level of insider buying which is a positive signal.
- U.S. Silica continues to look forward towards capacity expansion.
- The company has doubled its ongoing share repurchase program.
- The company's insiders have begun to buy shares on the open market.
- U.S Silica's share price has been battered by a collapse in the price of oil.
- Bearish technical indicators and continued weakness in the oil market will continue to hurt the stock.
- Although U.S. Silica is in a downward trend, there are a lot of things to like about the company, including strong profits and sustained demand.
- Until oil prices stabilize and technical indicators improve, U.S. Silica should be avoided.
- Oil and Gas frackers are using more proppant per well.
- Raw sand is being used instead of resin coated sand and ceramics because it costs less.
- U.S. Silica is taking market share.
- The firm just increased its buyback by $25 million to $50 million.
- Contrary to fear-mongers' claims, shale oil producers will continue to increase production.
- New drilling techniques will result in much larger demands for frac sand.
- Frac sand production is unlikely to meet demand in 2015 and 2016.
- Consequently frac sand producers will increase the prices of their products.
U.S. Silica: A Real Bargain In The Industrial Minerals And Mining Industry
- Now is a great time to go bargain hunting in the Industrial Minerals and Mining Industry.
- The big story with U.S. Silica Holdings is the explosive sales and revenue growth seen over the last three years.
- While SLCA represents a good value in the industry, it’s important to temper expectations with some sobering numbers.
I'm Not Calling A Bottom In Crude Oil, But Here's Why I Bought U.S. Silica
- U.S. Silica is oversold.
- The Industrial and Specialty Products business will help stabilize the firm's earnings.
- The frac sand business will not be severely hurt like the stock is suggesting.
- U.S. Silica has benefited enormously from the shale revolution, as fracking sand demand has risen by leaps and bounds over the past few years.
- With WTI significantly lower than before, U.S. Silica management still believes in the company's growth story of doubling EBITDA by 2017, although the market does not.
- If management is right, U.S. Silica could easily double by 2017, although if management is wrong, there could be an additional 30%-40% downside.
Silica: The Critical Ingredient That Makes Shale Rock Bleed Oil
- Despite shifting sands in the industry, U.S. Silica Holdings is operating on solid ground.
- The company is among the top 10 producers of industrial sand and gravel in U.S. and was the second-largest producer in 2012.
- More than a mining company, U.S. Silica Holdings is an impressive logistics company.
- The recent drop in share price is an opportunity to buy at attractive valuation.
- The recent correction in U.S. Silica Holdings stock price is an overreaction to the recent slide in oil prices.
- Hydraulic fracturing is still profitable at the majority of sites across the U.S., and it would take a steeper, more sustained tumble in oil prices to dent fracked crude output.
- The stock price's slide may afford investors an excellent buying opportunity ahead of the third quarter earnings report.
U.S. Silica: Strong Demand Trends With Great Risk/Reward Profile
- Over the past three years, oil drilling has boomed in shale formations around the country leading to high demand for frac sand.
- Surging demand has led to SLCA being able to raise pricing while also dramatically increasing capacity.
- Increased horizontal drilling and stronger demand trends support a promising long-term fundamental story.
U.S. Silica Well-Positioned As The Permian Basin Becomes The Core U.S. Frac Sand Growth Market
- The Permian Basin is rapidly shifting to horizontal drilling and larger fracs that are often 10 times or more sand intensive than before.
- As few as 400 of the largest horizontal Wolfcamp wells can require 2.5 million tons of sand--the entire annual production of a large-scale frac sand mine.
- Permian operators will likely drill at least 1,600 horizontal wells in 2015, making the basin the largest source of incremental frac sand demand growth worldwide.
- SLCA will by mid-2015 offer more than 65,000 tons of storage capacity within trucking range of Eagle Ford and Permian drilling areas, cushioning it from future rail disruptions.
- SLCA may make further acquisitions as political opposition restricts access to white sand deposits. Hi-Crush Partners' and Emerge Energy Services' sand business could both become consolidation targets.
- Adjusted EBITDA range was raised to $230 million to $240 million from $215 million to $225 million.
- This confirms my opinion that the stock is a great long-term investment.
- I have been right on this call as the stock has gone up 17% since I recommended it on August 4th.
Buy U.S. Silica Holdings Now For Explosive Potential Returns
- U.S. Silica has a well-blended and complementary mix of specialty and commodity products.
- It supplies products to industries that provide products we require to maintain our standard of living.
- The business has a proven management team that has a track record of excellent results building shareholder equity.
- The stock is inexpensive based upon a conservative valuation and has explosive upside potential as it gains more attention.
- U.S. Silica is a buy because of the supply demand imbalance of the frac sand market.
- The stock has pulled back recently, making now the time to pull the trigger.
- The acquisition of Cadre will help their business in the Permian Basin.
- Frac sand is highly elastic and unlikely to go parabolic.
- New supplies, new alternatives and recycling are likely to keep a lid on frac sand prices.
- Other fracking related investment ideas are likely to outperform frac sand.
Dec. 31, 2014, 2:50 PM
- U.S. Silica (NYSE:SLCA) CEO Bryan Shinn discloses he bought 4K shares yesterday at $25.43. Director Peter Bernard bought 5K shares at $25.41.
- COO Peter Winkler has also bought shares in December following SLCA's oil price-driven plunge, as have directors Michael Stice, Charles Shaver, and William Kacal.
- SLCA is closing the year down 23% YTD, and 64% from a September high of $73.43.
- Yesterday: Fracking sand plays sell off again
Dec. 30, 2014, 11:09 AM
- With WTI crude now trading near $54/barrel, fracking sand plays Hi-Crush Partners (HCLP -4.3%), U.S. Silica (SLCA -2.7%), and Emerge Energy (EMES -7.5%) are posting fresh losses.
- Baker Hughes has reported U.S. rigs targeting oil fell by 37 in the week ending Dec. 26 to 1,499. Idle rigs were at their highest level since 2012. Nonetheless, Goldman thinks U.S. producers might further boost production (already at its highest levels in more than three decades) in an attempt to grab share from OPEC, albeit while moving rigs to lower-cost fields.
- Several SA authors have defended U.S. Silica (I, II, III, IV) over the last month, citing its valuation and a belief frac sand demand should remain healthy even if oil prices stay under pressure. The company added to its buyback last week.
Dec. 23, 2014, 3:58 PM
- U.S. Silica (SLCA +2.9%) is higher a day after its board authorized an increase in the company's share repurchase program to as much as $50M from $25M, which the company says reflects confidence in its long-term strategy.
- Also, SLCA has been seeing some recent insider buying, including nearly $47K in purchases yesterday from two company directors.
Dec. 9, 2014, 3:48 PM
- U.S. Silica (SLCA +4.7%) enjoys strong gains after Ariel Investments' John Rogers names the stock as one of his favorites, citing valuation at less than 10x next year's earnings and down more than 50% in the current quarter.
- Rogers sees SLCA as a leader in the frac sand business, he likes the support provided by long-term contracts, and believes it will weather the current rough period for energy stocks.
- Rogers also recommends International Speedway (ISCA -1.3%), seeing a rebound in auto racing as the economy improves, and Brady Corp. (BRC +4.9%), citing valuation and new management.
Nov. 28, 2014, 12:48 PM
- Fracking sand plays U.S. Silica (SLCA -26.3%), Hi-Crush Partners (HCLP -17.3%), and Emerge Energy (EMES -16.5%) are among the many energy names sporting double-digit declines in response to OPEC's decision not to cut crude production, and the resulting plunge in crude prices. As are proppant providers Carbo Ceramics (CRR -16.2%) and FMSA Holdings (FMSA -16.5%).
- Wells Fargo's Wednesday downgrade of U.S. Silica was well-timed.
Nov. 28, 2014, 12:45 PM
Nov. 26, 2014, 9:51 AM
- Wells Fargo has downgraded U.S. Silica (NYSE:SLCA) to Market Perform, and slashed its valuation range to $47-$54 from $53-$60. The firm cites lower oil prices, and a belief oil E&P spend will remain weak.
- Peer Hi-Crush Partners (NYSE:HCLP) is also off.
- Previous: Lower crude prices could affect fracking sand
Nov. 19, 2014, 5:48 PM
- Not every price in the energy business is dropping: Despite falling crude oil prices and, until recently, a natural gas price stuck below $4/Mcf, demand for fracking sand continues to outpace supply.
- But if oil prices remain below $80/bbl, drilling and oilfield services companies would be pressured as E&P companies reduce their capital spending and their demand for services, which could result in reduced proppant volumes, a recent Moody's report warns.
- Key sector names: SLCA, HCLP, EMES
Nov. 7, 2014, 11:48 AM
- Despite falling oil prices and a pummeling in the stock market, the companies that supply sand and guar gum for shale oil and gas companies say business remains strong and are not ready to call an end to a four-year boom spurred by fracking technology.
- "We have not seen any data or had any discussions that indicate lower demand for our sand," said Hi-Crush Partners (HCLP +6.2%) CEO Robert Rasmus after the company reported record Q3 revenues this week.
- HCLP has dropped more than 40% since the beginning of September, but Rasmus says almost 90% of its sand output was sold for 2015.
- After Q3 revenues in the oil and gas sector more than doubled, U.S. Silica (SLCA +4.8%) CEO Bryan Shinn said the company is "actively engaged in conversations with our customers about their future growth, and none has brought down their estimated requirements."
Oct. 29, 2014, 5:21 PM
Oct. 24, 2014, 8:37 AM
Sep. 29, 2014, 3:48 PM
- U.S. Silica (SLCA +0.6%) is well positioned to take advantage of the demand boom for frac sand, Miller Tabak analysts say in initiating coverage with a Buy rating and an $82 price target.
- The firm believes E&P companies "are just starting to understand the benefits that increased reservoir contact has on ultimate recovery," expecting frac sand demand to reach 84M tons by 2016 vs. 28M in 2013; it sees SLCA as one of the best ways to play the growth due to its aggressive capacity expansion plans and industry leading logistics and transload network.
- Earlier this month, SLCA raised its FY 2014 EBITDA guidance to $230M-$240M from an earlier range of $215M-$225M, well above analyst estimates.
Sep. 24, 2014, 11:18 AM
- Hi-Crush Partners (HCLP +6.8%) is upgraded to Buy from Hold with a $66 price target at Wunderlich, citing predictable growth and solid fundamentals.
- The recent pullback in oil prices that has impacted E&P stocks has also taken a toll on frac sand stocks, particularly HCLP; the firm says the group's fall is much greater than the drop in oil prices and the E&P index, but demand for Northern White Sand remains inelastic in the near term.
- Wunderlich continues to prefer Emerge Energy (EMES +4.8%) to HCLP on a risk-adjusted basis, but it rates both stocks at Buy.
- Not mentioned in the report, U.S. Silica (SLCA +3.5%) also is moving higher today.
Sep. 23, 2014, 12:58 PM
- Hi-Crush Partners (HCLP -5.8%) is sharply lower, apparently due to a negative mention last night from Jim Cramer, who urged investors to avoid the stock as well as U.S. Silica (SLCA -2.3%) after big gains YTD.
- "At the end of the day, this stuff is just sand and sand is plentiful," Cramer says, adding that oil drillers could switch to another substance in place of sand for fracking if the sand ever gets too expensive.
- The only frac sand play Cramer likes - and only if one must own a stock in the space - is Emerge Energy Services (EMES -5.8%).
Sep. 18, 2014, 6:26 PM
- U.S. Silica (NYSE:SLCA) says demand for frac sand could triple over the next five years as energy companies use increasing amounts to extract more oil and gas from shale fields.
- SLCA CEO Bryan Shinn tells Reuters some customers are using 10K tons of sand for one well - "a mile long train of sand, to just frac one well."
- SLCA sold ~8.2M tons of sand in 2013, and expects its sand volumes to grow 30%-35% this year; it is looking to ramp up frac sand production capacity to 14M tons by 2016.
- SLCA's stock price has more than doubled YTD; rivals Hi Crush Partners (NYSE:HCLP) and Emerge Energy (NYSE:EMES) have jumped 65% and 168% YTD respectively.
Sep. 17, 2014, 3:56 PM
- CARBO Ceramics (CRR -4.9%) is sharply lower after Iberia cut its price target for CRR shares to $85 from $108, as well as 2014 earnings estimates, citing lower expected ceramic sales volumes due to bad weather and delays to the pad drilling program.
- Iberia says it is concerned the issues may drag into Q4 and 2015, keeping an Underperform rating on the shares.
- Elsewhere, HCLP -1.8%, SLCA +1.3%.
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