According to a Barron's article on Saturday, October 26, 2013, the Furmanite Corporation stock price, which serves chemical manufacturers and oil refineries, could see some strong growth, with a possible gain of 30% in it's stock price. We agree with Barron's thesis.
We think this gain is very possible over the next six months and the earnings report that the company will be distributing late this week should reinforce our positive views on this company.
Outlook for the US Economy
In order to understand the significance of this growth potential, let's compare it to the sluggish U.S. economy. It's anticipated that over the course of the next two decades, economic growth will grow by as little as 2 percent a year. Since the Second World War, it has risen by 3 percent or more. In other words, this is bad news for the country as a whole and for stocks like FRM in particular.
Two Chief Reasons for the Bad News
There are primarily two reasons for this sluggish economic growth.
The first reason is a changing of the guards.
The productive Baby Boomer generation are now beginning to retire. It's mainly their efforts that stimulated the United States' prosperity before the recession. The new generation, known as the Millennial generation, for a variety of sociological reasons, are generally not as motivated to create industrial progress for our country.
The second reason is sluggish productivity in all industries.
There are numerous political, social and economic reasons both in the US and around the world for the downshift in the production of goods and services.
What Makes Furmanite Corporation an Exception?
So what makes Furmanite Corporation (NYSE:FRM) different? Why is it bucking the general trend in relationship to most industries in the US?
In order to understand this question, we need to take a snapshot view of what, exactly, this company does.
A Snapshot of Furmanite
Many corporations have a singular focus that allows an investor to grasp its fundamental business in a few words. Furmanite Corporation, however, operates in many sectors. It provides services in different regions of the world through subsidiaries, serves a large number of industries, and provides a wide range of specialized technical services. Consequently, one of the easiest ways to understand this company is by offering a snapshot. This will give you a quick overview, without overwhelming you with the complicated nature of its myriad enterprises.
Founded in 1952, Furmanite Corporation has its headquarters in Houston Texas. It's was formerly the Xanser Corporation.
This company provides highly specialized technical services through its subsidiaries.
Primary regions of operation:
• Americas (North and South America)
• EMEA (Europe, Middle East, Africa)
It offers a wide spectrum of services, which can be broken into 3 categories.
A. Examples of on-line services:
• leak sealing
• hot tapping
• line stopping
• line isolation
• composite repair
• valve testing
• testing and inspection
B. Examples of off-line services:
• on-site machining
• heat treatment
• valve repair
• testing and inspection
C. Other services:
• smart shim services
• concrete repair
• engineering services
• valves and parts
• manufacturing services
• petroleum refineries
• chemical plants
• mining operations
• offshore energy production platforms
• subsea piping systems
• steel mills
• nuclear power stations
• conventional power stations
• pulp mills
• paper mills
• food and beverage factories
Conclusion: Putting the Pieces Together
Barron's thesis of FRM shares rising as much as 30 percent which we agree with is based on the some fairly solid reasoning about the potential of this vast company.
While the snapshot showed the company's massive infrastructure and widespread interests, there are some very specific reasons why we expect the share price to rise over the next six months:
• Furmanite Corporation has been restructured to improve efficiencies across the board. Some 75 regional services that once operated autonomously have now been restructured to form a single cohesive business model that offers high-demand specialized technical services globally.
• Furmanite Corporation has little net debt.
• Furmanite Corporation has rising sales and operating income.
• Furmanite Corporation has expanded its market reach
Disclosure: I am long FRM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.