My current favorite for the second half of 2014 is Vertex (VTNR), a leading recycler and reprocessor of used motor oil (primarily) and other petroleum byproduct streams into higher value end products. These are then sold as feed stocks to other fuel blenders and re-refiners, or as replacement fuel...
My current favorite for the second half of 2014 is Vertex (VTNR), a leading recycler and reprocessor of used motor oil (primarily) and other petroleum byproduct streams into higher value end products. These are then sold as feed stocks to other fuel blenders and re-refiners, or as replacement fuel for use in industrial boilers.
The Company reported a very strong first quarter beating estimates by 100% reporting $.06 adjusted (for the $.02 of acquisition related expenses). This is also 20% better than last year’s $.05, even on 18% more shares. Net income was $1.46 million, excluding the acquisition expenses this year, vs. $1.05 million last year, a 39% improvement. Also margins per barrel improved by 5%, and the refineries are humming. On May 28th the shares vaulted 13% after giving a presentation that really laid out the businesses of both Vertex itself and its recent Omega acquisition and gave some indications as to the combined entity, which will be the second largest processor of used motor oil in the U.S. with 110 million gallons of annual processing capacity.
The company’s targets (not guidance) for diluted EPS (fully taxed at 37.5%) are $.60 - $.85 at current pricing with Omega in tow. But they are $1.00 - $1.25 under the improved pricing it believes could be in store. While no time frame is given for this (one could make reasonable assumptions), the estimate in my recent recommendation for 2015 is $.80 while the consensus is $.84 (64% growth over 2014), with one of the three analysts net yet updating his estimate to reflect the acquisition of Omega. The target revenue rate that goes with this is about $470 million, vs. my 2015 estimate of $410, so this could get interesting.
Vertex believes it can negotiate better pricing on Omega’s sales (plus realize some pricing tailwinds from recent market factors, including a legislated 90% reduction in sulfur emissions from marine fuel beginning in 2015), do better on the average price of collected oil by Omega, and realize other synergies. It also believes the engineering talent at Omega could result in production improvements and the increased ability to produce higher end refined products. At $8.50, the shares trade at just 10 times 2015 rapidly growing earnings. Buy.
Tom Bishop, BI Research, www.biresearch.com, July 15, 2014