William Blair Maintains Outperform On US Silica Following Acquisition Of Cadre Services


In a research report published yesterday, William Blair analyst Brandon Dobell maintained an Outperform rating on US Silica Holdings (SLCA) in light of the news that SLCA has signed a purchase agreement to acquire all the outstanding shares of Cadre Services Inc. No price target was assigned.

Dobell wrote, “We believe the market will view the acquisition as a net positive, although it will not come without its scrutiny given the lower price points (and contribution margin) for Brady Brown and (we would expect) investor concerns that the deal is defensive and an attempt to head off a move from E&Ps to lower quality sand as Ottawa White sand prices continue to rise. We believe the acquisition opens up new relationships from customers that currently buy sand from Cadre but not U.S. Silica but could be customers of U.S. Silica in other basins for U.S. Silica’s Northern Ottawa White sand”.

The analyst continued, “We believe the outlook for sand as part of the well completion thesis in the United States remains quite strong (particularly relative to other components of the well completion process) given the high barriers to entry and the increasing need for multibasin scale and logistics. We believe U.S. Silica is well positioned to drive strong volume and contribution margin growth. In our view, the stock’s strong year-to-date performance implies profit expectations for 2014 and 2015 that are pushing up quite high, and we recognize that a healthy amount of good news (and new investors) have made its way into valuation. While we believe the fundamentals for U.S. Silica and other frac sand providers are quite strong, we believe investors need to see pricing and volume demand continue to outpace expectations”.

According to TipRanks.com, which measures analysts and bloggers success rate based on how their calls perform, analyst Brandon Dobell has a 22.4% average return and a 54% success rate. Dobell is ranked #581 out of 3216 analysts.

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