This Top Pick recommendation is expanding and just completed the acquisition of Heartland Group Holdings, LLC, a used-oil collection and re-refining company with its primary operations in Columbus, Ohio. Shares have been beaten down with lower oil prices, and now offer a discounted entry point. Last month, the shares were initiated as a “speculative buy” by Global Hunter Securities.
Vertex Energy, Inc. (VTNR)
from BI Research
Vertex Energy, Inc. (VTNR) is a collector, recycler and refiner of used motor oil.
The shares have been hit hard with the rest of the energy sector due to the collapse in oil prices from over $100 this summer to under $50 currently. For oil drillers, this lost revenue pretty much comes right off pre-tax income as well, a huge hit to profitability.
But for Vertex, a recycler of used oil, it can do well at any given oil price, as long as it isn’t rapidly falling, by managing the spread of what it pays for used motor oil (or more recently charges for collection) vs. what it can sell the various re-refined products for.
It doesn’t really matter that much if oil prices stabilize at $55 or $90. And management has over 25 years of experience managing that spread. Over the longer term, I believe this is more likely to move higher than lower as drilling activity globally tapers off in 2015.
Nothing brings about higher oil prices better than low oil prices. The shares traded at $10 six months ago and then were hammered to excess, probably because Vertex had to work out some covenant issues with its lenders (as do many energy companies in this environment), which it can’t finalize until oil prices stabilize. They will work it out though.
Before oil prices plummeted, the 2015 EPS consensus was $.92. While this consensus has dropped to $.47 and could even go lower due to oil’s continuing drop, this gives you an idea/range where earnings should recover to once oil prices stabilize.
In December, the CEO purchased 488,600 shares at $3.07, which tells you something. The shares have bounced from $3 to as high as $4 recently and I think more is on the way once oil prices stabilize.
Tom Bishop, BI Research, www.biresearch.com, January 6, 2015