Today’s 2014 Top Picks update is receiving new Wall Street attention, with upgrades to “accumulate” and “outperform” at Ardour Corp. and Boenning & Scattergood, respectively.
Calgon Carbon (CCC)
from The Periscope Report
Our top stock for 2014 is Calgon Carbon (CCC), which is up 11% this year. CCC is a leader in “carbon reactivation,” which is used for the treatment of drinking water, wastewater, ballast water, air emissions and a variety of industrial and commercial manufacturing processes.
The cost of having carbon reactivated is approximately 50% of the cost of new carbon. Plus, spent carbon containing organic contaminants is required to be disposed of at a recognized waste processing facility. Reactivation makes this unnecessary.
For the 1Q ended March 2014, revenues at CCC decreased 3% YoY to $131.6 million, but the gross profit increased 4% to $44.2 million. Net Income was flat YoY at $9.8 million, or $0.18 per share, which met the sell-side estimate. ROE was 12.0% and ROA was 7.5% over the last 12 months, and these efficiency ratios have improved six quarters in a row. Cash Flow from Operations was $10.2 million, up from ($612,000) a year ago.
CEO Randy Dearth said he is going to use this Cash Flow over the next two years to buy back $130 million in stock, a great reason for our clients to keep buying the stock, considering that represents 11% of the company’s market cap of $1.2 billion.
The Board approved a capital spending budget of $85 million for 2014. CapEx was $30 million in 2013. CapEx “will increase significantly” in 2014 due to preparing for new market opportunities. Plus, cost improvement programs will save at least $20 million in 2014 and more in the years after that.
CCC supplies more than 50 million pounds of high-quality activated carbon annually to municipalities worldwide for drinking water treatment, more than any other company. About 24% of CCC’s business is in drinking water. This market opportunity will grow every year because drinking water becomes more of a problem as the population grows. (Research Note: the necessity of drinking water and its shrinking supply is the primary reason behind our recommendation of CCC.)
Management has made it very clear that strong growth starts in 2015 when government regulations kick in to treat drinking water, ballast water, mercury removal, and pollution control. CCC remains our favorite Top Recommendation based on this growth forecast and its market dominance.
Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Canyon Ferry Crossing, Helena, MT 59602, 406-465-4663, July 7, 2014