Why Is Heckmann Free Falling?

As the United States continues to become more energy independent -- thanks in part to controversial fracking techniques -- small stateside companies are trying to build out niches that could turn into huge cash cows.

One of those companies, which I've covered for quite a while, is Heckmann (NYSE: NES  ) . The company is intent on supplying, disposing of, and cleaning the water needed for both natural gas and oil extraction.

Today, shares of the company started out down by as much as 9%. Though Heckmann did file some papers with the SEC today, those papers were largely procedural, and as far as I can see, introduced no new information that could cause such a drop.

Instead, today's drop looks to be related to a downgrade from an analyst at Webush, who said that channel checks indicated the probability for lower earnings, pricing pressures, and weakness in natural gas. The analyst changed the price target on the stock from $3.00 to $2.50.

While there's no way for me to tell if these concerns are legitimate, I can assure you they are short-term in nature. If Heckmann continues to win contracts to help meet the needs of North American energy extractors, it is likely to become more ingrained in the energy industry; thus, it is also likely to endure the ups and downs of the cyclical energy industry. That's just part and parcel of energy investing.

As a long-term investor, the key to focus on is Heckmann's ability to build out the infrastructure necessary to put a moat between itself and possible competitors. The acquisition of Power Fuels last year was a huge step in the right direction, but only time will tell how that plays out.

Another common misconception that Wall Street sometimes forgets is that Heckmann -- which once focused almost exclusively on natural gas -- has branched out in its revenue streams.

I own shares of Heckmann myself and have no intentions of selling them because of this downgrade. But while I think an investment in Heckmann is worth my money -- and my All-Star CAPS profile -- right now, I've only devoted about 1% of my holdings to the company.

If you'd like to find out about an energy company that I have for more conviction in -- I've devoted more than 8% of my real-life holdings to the company -- I suggest you check out our special free report: "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.


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  • Report this Comment On February 11, 2013, at 11:56 AM, ValueInvestor999 wrote:

    It's the debt .....this is a debt levered play........this stock doesn't move until it generates enough free cash flow to delever. You can hype all you want with the business and the industry. It's the cash flow necesarry to reduce the risk associated with enough debt to choke a horse !

  • Report this Comment On February 11, 2013, at 1:42 PM, TMFCheesehead wrote:

    @Value-

    Agreed, the company is taking on a lot of debt--especially via acquisitions--right now in order to secure what it sees as a huge market opportunity tomorrow. If the company's thesis plays out as true, we'll see that, eventually, through the reduction of said debt.

    Brian Stoffel

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