Why Heckmann's Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of shale water management company Heckmann (NYSE: HEK  ) fell 22% today after the company released earnings.

So what: Management said second-quarter revenue more than doubled to $90.8 million and net income reached $10.7 million, or $0.07 per share. Earnings topped the $0.02 mark analysts had set, but revenue fell well short of the $98.9 million they thought Heckmann would hit. The revenue miss drove home a concern in the sector as investors worry about reduced natural gas drilling in the U.S.

Now what: The numbers might not have met expectations today, but I still see a bright future ahead for Heckmann. The company's services are in high demand for drillers, and the company is growing rapidly, despite the revenue miss. The company is also growing profits quickly, which I think will help drive shares higher. Today is a great discount for investors eyeing shares in this shale service provider.

Interested in more info on Heckmann? Add it to your watchlist by clicking here.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Heckmann. The Motley Fool has a disclosure policy.
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Read/Post Comments (9) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On August 07, 2012, at 4:07 PM, ValueInvestor999 wrote:

    Just maybe the stock is way over valued considering the company has debt of $265 million, $5 million of cash and a whopping 166 million shares valuing the entire company at almost $700 million while proforma 6 month annualized EBITDA was only $70 million. I don't see any bargain here.

  • Report this Comment On August 07, 2012, at 4:13 PM, esteemxxxx wrote:

    I'm no FOOL! I backed up the truck today at $2.66.

    Strong Buy

    Natural Gas usage is going to double at the expense of coal and will be driven both by abundant supplies of natural gas — made more available by shale drilling — and by measures to restrict the carbon dioxide emissions that are linked to climate change. This is where HEK comes in.

  • Report this Comment On August 07, 2012, at 4:19 PM, esteemxxxx wrote:

    Value investor,

    If you THINK you're going to get HEK at a much lower discount then here. Good Luck. 70% of a stocks movement is based on psychology factors (technicals), not fundamentals. That's just how the game is played whether you agree or not. If you want VALUE but Apple or Google however you pay a high premium for a cheery consensus.

  • Report this Comment On August 07, 2012, at 5:14 PM, drjoe56 wrote:

    I had been tracking HEK for a few weeks and bought it at $3.05 last week. I was sure this was on the way to $4.50. Went it went to $3.38 on Monday I knew I was right. And then today?!?

    This is a real lesson for me to keep my day job. I have seen other senseless price drops, but this was unpredictable. I feel more certain playing video poker at a casino.

  • Report this Comment On August 07, 2012, at 5:15 PM, mikevr1463 wrote:

    I disagree. Instead of focusing on fundamentals for this speculative play, I continue to invest in HEK because of:

    (1) the prior successes of the jockey (water filter & K2 companies)

    (2) favorable macroeconomics:

    (a) the EPA is poised to soon create enormous value for HEK's ability to safely dispose of fracking fluids and "recovered water".

    (b) huge well backlogs now awaiting completion or uncapping.

    (c) long term requirements for water disposal (even though the half life of unconventional wells is less than 2 years!)

    Cheers,

    Mike (long HEK, WPRT, CLNE, and GTLS)

  • Report this Comment On August 07, 2012, at 9:37 PM, jamterny wrote:

    Prior success Mike? Look at the track record.

    Heckmann:

    Failure 1) China Water

    Failure 2) Buying disposal fields at the top of the market

    Failure 3) Joint Venture with Energy Transfer Partners

    Failure 4) Pipeline project in Haynesville Shale

    Failure 5) CVR and NG trucks for hauling services

    Current failing #6: Buying TFI to have something to distract from the last 5 failures. Bought when oil prices were topping out as a natural gas "hedge" against their already failed pipeline and hauling business.

    Heckmann operates based on the "greater fool" theory of business, and he has been the last fool standing 5 times in a row, going on 6.

    Predicting more hilarious financial shenanigans with "adjusted" EBIDTA on their next earnings call.

  • Report this Comment On August 08, 2012, at 8:04 AM, djknow wrote:

    Not a safe play but I threw a few sheckles in at the close. Its because the natural gas resources in the US are found to be abundant and drilling for it will continue on and on, albeit fluctuating on demand. Looming regulation in the field, which was straight armed for some time with Bush/Cheney waivers to the clean drinking water act, are coming too and the ones ready to offer turnkey services will reap the benefit. The big boys aren't likely to trust these responsibilities to job shoppers.

    I do scratch my head at their unwillingness to provide guidance. The spectrum of possibilities are there, but if HEK can stay afloat then there is nice upside coming.

    Obviously I was convinced of it enough to pull the trigger.

  • Report this Comment On August 10, 2012, at 11:53 AM, mikevr1463 wrote:

    Note the differences in CEO rationales who both have a large stake in unconventional NG plays:

    Aubrey McClendon says NG price at bottom and will soon rise.

    Heckmann (HEK)says NG prices are uncertain, thus he cannot give a guidance.

    Q:Which CEO would you trust?

  • Report this Comment On September 04, 2012, at 3:20 PM, mikevr1463 wrote:

    At his CC, CEO Heckman remained silent about his upcoming merger with a company that fracked oil wells in North Dakota Bakken fields. Heckman remained silent even though he knew that such an eminent acquisition would strengthen HEK's fracking business, while lessening HEK's dependency on NG prices.

    Heckman bit the bullet, and made no guidance.

    Today his stock is up 35%.

    Contrast this approach to Aubrey's style. Where is CHK's stock today?

    Q. Which CEO gave the better guidance?

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