U.S. Silica Confirms In-Basin Frac Sand Pricing Is Strong

Oct. 29, 2018 10:16 AM ETU.S. Silica Holdings, Inc. (SLCA)14 Comments
Todd Akin profile picture
Todd Akin
2K Followers

Summary

  • U.S. Silica reported another solid quarter. The stock sold off for the wrong reasons, which is becoming a natural occurrence.
  • The reasons for the sell-off are due to pricing fears weighing on earnings, and in-basin mines having no value because of the “perceived” ease of replication that could happen in other basins. But, SLCA provided more color as to why these narratives are false.
  • Since short sellers are grossly mispricing SLCA, as their claims are false or should have already been priced in, then I am choosing to stay long shares.
  • I will add to positions when the dust settles.

U.S. Silica (NYSE:SLCA) reported revenues of $423.2 million in the third quarter, which was down 1% from the previous quarter due to widely-reported delays in completions that caused pricing to momentarily suffer. So call the coroner, they must be going bankrupt.

SLCA even made net income, added new last mile offerings, and increased Oil & Gas volumes 10%, which proves that the business is not in trouble. As long as this does not turn into a trend of weaker quarters (SLCA said the recovery is expected to happen in the next two quarters), then this bushwhacking will turn out to be false, and prove that the stock was a buy all along.

U.S. Silica's Industrial & Specialty Products segment continues to impress, and Wall Street repeatedly ignores it. More records were broken for contribution margin per ton, which increased 103% year-over-year. SLCA's ISP business grew revenues by $120 million, and saw the full effects of their acquisition of EP minerals completed last May. They also have over 100 projects waiting to be completed. So, this is providing much needed diversification to Oil & Gas revenues, and points to another catalyst ahead for SLCA.

SLCA is showing that it can execute in a tough environment, and that it has the diversification needed to survive a downturn. However, the stock, much like other frac sand players, is given no credit for its success.

I believe shares are still a buy long term, since in-basin pricing will remain strong, where 70% of SLCA’s revenues are based.

Why In-Basin Pricing Will Remain Strong

There are various dynamics driving a more bullish picture for frac sand than even I previously expected, which was $65-$75 long term. In-basin numbers are around the $60s or $70s anyway, according to SLCA. So if pricing can hold up that well for SLCA during a slowdown, then imagine

This article was written by

Todd Akin profile picture
2K Followers
Graduated from the University of Houston- Downtown with a degree in Finance. My site, Wallstreetstocksolutions.com, focuses on portfolio management and unique investment opportunities.

Disclosure: I am/we are long SLCA. 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.

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