William Blair Maintains Outperform On US Silica Following Strong Quarter Results


In a research note published yesterday, William Blair analyst Brandon Dobell maintained an Outperform rating on US Silica Holdings (SLCA) following the company’s revenue report, which exceeded expectations. No price target was assigned.

Dobell wrote, “Key operating metrics (volume, contribution per ton and EBITDA) all outperformed and we believe support a continued move higher in the stock, even with expectations fairly high into the print. The volume results and commentary bode well for stock reactions from U.S. Silica’s peers, Hi-Crush (HCLP) and Emerge Energy (EMES) heading into their earnings reports over the next two weeks. We expect the revised EBITDA guidance will drive investors to look at 2015 EBITDA of at least $275 million, which implies a valuation on Tuesday’s closing price of 12 to 13 times (assuming cash and debt on the quarter-end balance sheet and the impact of the Cadre acquisition). This multiple is not inexpensive, but if volume and contribution per ton growth continue, we expect it will prove to be lower than it looks as the market gets a better handle on 2015 through 2017 cash flows.

The analyst continued, “U.S. Silica remains one of our favorite ways to play the secular and cyclical drivers currently impacting North American activity, and our diligence into the supply side of the market gives us confidence in using weakness in the stock to add to (or establish) positions. We recommend buying the stock, given the long-term trends in the frack sand market (longer laterals, more stages, more proppant per stage), U.S. Silica’s competitive positioning as one of the lowest-cost producers with an extensive distribution and storage network, and our expectation that volume growth will be stronger for longer than the market is currently expecting. We do not expect management will be bullish on a continued upward trajectory for contribution per ton given the investments the company is making in logistics and new capacity, as well as the sustained demand of 100 mesh, but we expect to hear that demand, pricing dynamics, and market share opportunities are still very much intact.

We believe the outlook for sand as part of the well completion thesis in the U.S. remains quite strong (particularly relative to other components of the well completion process), given the high barriers to entry and the increasing need for multi-basin scale and logistics. Continued progress on their logistics network, accessing new basins and driving better pricing/yield in the ISP business should help drive profits above expectations in the coming years, in our view. We maintain our Outperform rating, particularly given U.S. Silica’s results in oil and gas relative to results and forward guidance from service companies this quarter”.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform analyst Brandon Dobell has an 18.8% average return and a 53.3% success rate. Dobell has a 4.7% average return when recommending SLCA, and is ranked #616 out of 3189 analysts.

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