Metalico Inc (AMEX: MEA) has recently captured the attention of the under-$10-and-trendy growth crowd. With operations in ferrous and non-ferrous scrap metal recycling and fabrication of lead-based products, Metalico collects, processes and sells scrap metal to customers including integrated steel mills, foundries, secondary smelters, aluminum recyclers and metal brokers. The company currently operates eleven recycling facilities through New York, Pennsylvania, Ohio and New Jersey and five lead fabrication plants in Alabama, Illinois, Nevada, and California. Metalico's 391 employees generate almost $550,000 each in revenues, making the company one of the most efficiently operated recyclers in the business.
Significant Material Events With a taste for acquiring junkyards and scrap metal recyclers, Metalico has grown its business from $61 million in 2004 to estimated revenues of $259 million* for 2007. This year, Metalico purchased four companies with combined annualized revenues of approximately $125 million, including Tranzact Corporation, Annaco, Inc, Totalcat Group, and Compass Environmental Haulers. PA-based Tranzact reported sales of approximately $25 million during each of the two previous years. Annaco and Totalcat collectively generated approximately $92 million in revenues in their most recently completed fiscal years. Since Metalico took over Rochester-based Compass, volume through the facility has nearly doubled to approximately 300 tons per day.
In April 2007, majority owned subsidiary Beacon Energy Corp. completed a $3.6 million investment in Terra Bioenergy LLC, a Missouri-based development stage biodiesel production company. Terra is in the initial phases of constructing a 30 million gallon per year biodiesel production plant. Beacon currently owns 40% of Terra, with an option to increase its ownership level to over 50%.
Metalico recently increased its existing credit facilities to an aggregate amount of $85 million, including modification of an existing loan agreement with primary lender Wells Fargo Foothill and the addition of a revolving line of credit for equipment and capital expenditures.
Fundamentals Over the past three years, Metalico posted compounded top line growth of 44% while delivering double-digit returns on equity. For the second quarter of 2007, EPS climbed to $0.14 on revenues of $66.8 million, compared to $0.12 and $57.3 million in the year-ago quarter. Earnings were in-line with analyst estimates, with revenues topping consensus by almost $6 million.
Metalico appears attractively undervalued at this time, boasting an estimated forward P/E of 12 versus a trailing P/E of 19 compared to 25 for the industry. Price to cash flow is a low 5.63 versus 14.60 for the industry, with price to sales (0.40 vs. 2.70) and price to book (2.44 vs. 3.28) placing Metalico's valuation in the top third of its competitors. Operating margin (9.46% vs. 2.26%), ROE (34.30% vs. 12.66%), and ROA (10.49% vs. 5.94%) also soundly trump industry averages. EPS growth is 36.36% compared to 15.12% for the industry (TTM vs. prior TTM), with projected EPS growth of 24.53% versus 22.85%.
Because of tight regulations on scrap metal recyclers, Metalico could face obstacles as it strives to expand beyond local permitting restrictions for its facilities. The Company also continues to incur environmental monitoring costs of its former smelting and refining plant in Tennessee, and retains environmental liability exposure issues for off-site clean-up and remediation matters on a former subsidiary in Florida. Fluctuations in the price of metals is another critical factor, affecting both the cost to acquire scrap and the price at which recycled materials are sold.
Weather can also affect the bottom line. In its first quarter report, CEO Aguero noted, "The geographic regions where we operate were hampered with many days of severe winter weather conditions which resulted in lower unit volume sales in both business segments compared to last year." Diversifying into additional markets such as auto recycling and acquiring locations in fairer climates are two possible solutions being considered. In the still-growing $30 billion market for recycled metals, there are more than 1,000 independent operators, some of which may attract Metalico's current hunger for acquisition and expansion.
What Analysts Say Just two months after initiating coverage, Metalico was upgraded to Buy from Hold by analyst Morgan Joseph on August 7. Thomson changed its rating from Hold to Buy August 10, setting a price target of $9.00 and $10.50 per share. Louis Navellier grades Metalico a "B" overall, citing margin growth, return on equity, and cash flow among the company' top performing areas.
News 
Market Data 
Discover 
