Heckmann got Hammered
Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Earlier this week, Heckmann Corporation (NYSE: NES) reported its 2Q results. If you are cheering for this stock, then you were excited: Revenue more than doubled from 2Q a year ago. Heckmann, and their subsidiary companies, basically take care of all the water logistics associated with fracking (Isn't that word fun?).
Things looked like they were on the up and up. Maybe you are therefore perplexed to see Heckmann DOWN nearly 20% at the time of writing this article.
Heckmann is getting absolutely hammered right now. If profits have more than doubled from last year, then why would investors be heading for the hills?
There are a couple of red flags in the report. I'll highlight the ones that stood out to me.
1. The rigs that Heckmann provides their services to, specifically Haynesville, are down over the last 18 months from 120 to under 40. That's a nearly 70% drop in "customers." Not encouraging.
2. Part of their profits came from a $20 million income tax break. Investors like to see profits from sustainable business, not one time breaks.
Like I often say, many (if not all) big swings in the market are due to feelings. Investors get spooked with relatively small news stories that seem bad. Investors get drunk with excitement when "the next big thing" comes along. The Foolish advice you'll read a lot around here is to take your emotions out of it, and analyze the news. If you are thinking about buying in, be thinking about the long haul. If you are thinking about selling, remind yourself why you bought in the first place, and see if things have now changed.
While these two points are reasons for concern, I would like to point out that according to the report, these rig counts have been declining over the last 18 months. This didn't happen yesterday. Heckmann has been, little by little, losing these rigs, but has managed to double profits. I find that reason to be extremely optimistic about the future. If they can turn a profit with less than 40 rigs, what happens when (if) the other 80 come back online?
Also, about the tax break: With it, profits were $90.8 million. Let's subtract it now; that means that profits were $70.8 million compared to $39.2 million a year ago. That's still about an 80% increase of last year. That's not too shabby.
If you like Heckmann and are optimistic about their future and the future of fracking, then Mr. Market put Heckmann on sale for you this week. Have fun shopping. I think that the future is bright and they will surprise everyone in 3Q as they continue to grow profits.
thequast owns share of the Heckmann Corporation. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.