Value Microcaps Junior Energy

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An Updated Look at Some Frac Sand Stocks (from Briefing.com)
Along with the collapse in oil prices, frac sand producers -- whose sand, called proppant, is used it horizontal drilling -- have seen their share prices take a beating. The reasoning, of course, is that the economics for producing oil is less attractive for E&P companies, therefore, reducing drilling plans, capital budgets, and demand for frac sand. We have seen evidence of this already as large oil & gas producers have pulled-back on their capital budget plans -- notably, ConocoPhillips (COP) announced on December 8 that its 2015 capital budget will likely be lower by 20% compared to 2014. However, this week, a few major frac sand players presented at the Wells Fargo Energy Symposium, and while there seemed to be a general resignation that lower crude prices will ratchet down expectations next year, the tone hardly was one of "the sky is falling."

For instance, U.S Silica (SLCA) said that demand for frac sand is still expected to double between 2013-2016, FMSA Holdings (FMSA) said that there is now a 24 month wait for rail cars and next year it expects to have over 200 unit trains for shipments, and that at $60 oil, it expects proppant demand to still be up in 2015. Additionally, on December 5, Robert Baird upgraded Emerge Energy Services (EMES), FMSA Holdings (FMSA), and Hi-Crush Partners (HCLP) to Outperform, stating that frac sand providers have been oversold relative to the 20% capex reduction firm sees as likely in the oilfield.

Finally, on December 5, HCLP's Co-CEO bought 30K shares of stock, and on December 4, an FMSA Director bought 4,500 shares of stock.


While it can be treacherous to try and pick a bottom, there seems to be some good footing here in terms of at least starting to consider these stocks. As we lay-out below, the valuation on some of these stocks is downright dirt cheap.

Company/Ticker Revenue/Growth (Y/Y)* Revenue/Growth (FY15) EBITDA* EPS (FY15) 1-Year Forward P/E 1Year Forward P/S Dividend Yield Stock Performance (1 Month)
US Silica/SLCA
$627.2 M/+58% $1.1 B/+26% $165.1 M $3.21/+33% 8.3x 1.4x 1.8% -35%
Hi-Crush Partners/HCLP
$255.6M/+122% $521.0M/+48% $103.4 M $4.29/+36% 7.7x 2.3x 7.8% -27%
Emerge Energy/EMES
$868.7M/+39% $1.4B/+20% $95.6 M $7.12/+85% 7.2x 0.8x 12% -40%
FMSA Holdings/FMSA $1.0B/+41% $1.5/+11% $296.9 M $1.29/+17% 5.7x 0.77x 0% -43%

*Nine Months Ended Sept 30, 2014

**Highlighted = metrics in which that particular stock has the best metric.

A few observations about the above data... Topline growth has been very impressive for all of these companies, but, that is well-known at this point. Each of these companies is comfortably profitable on an EBITDA basis, and, generate plenty of cash. Growth rates for revenue in FY15 will decelerate, and may still be too optimistic as estimates come down, but, solid double-digit growth still looks attainable.

EMES and HCLP have impressive dividend yields, but, those too may come down as they cut their distributions in coming quarters.

From a valuation basis, FMSA is the cheapest, and, its shares have also been hit the hardest.





Disclaimer: The author of this article owns shares of FMSA.

Read more: http://www.briefing.com/DisplayArticle/Article.aspx?ArticleId=NS20141211100312TheNextBigThing#ixzz3LbhnjYZ6