Since 2001, Duratek (NASDAQ:DRTK), a company that handles nuclear waste and operates nuclear facilities, has been a five-bagger. While revenue has been flat for the last three years, the company has managed to increase operating income by 40.3% over that time.
The company's stock is down 13% in afternoon trading on news that -- guess what? -- revenue will be flat once again in 2005. That, of course, bodes poorly for second-half results. Hurting the stock, in my opinion, is word that Duratek may have to reduce its target of $15 million to $17 million in debt reduction. Although Duratek did not provide earnings guidance, the debt target reduction might impair its ability to increase cash flow and earnings, though it should have more than sufficient interest coverage.
Duratek has been trying to generate more cash. In 2004, the company reduced its long-term debt by $30 million and by some accounts, finally seemed poised to start growing revenue. But the company reports that commercial projects are not coming in fast enough to cover work that is being completed, and, more troubling, that the sales cycle has lengthened for federal opportunities. Also, no international work contracts have been awarded to it this year.
More diversified competitor Shaw Group (NYSE:SGR) echoes similar problems but also notes delays in funding for existing contracts. That's not a pretty funding picture now that legislators are taking about budget cutting to fund relief for Hurricane Katrina victims.
Analysts were expecting good things from Duratek. After growing earnings by 34.3% over the last five years, analysts expected 17.5% growth annually over the next five years. With the stock trading at 11.4 times trailing earnings, it looked to be value priced.
Ah, but that low multiple to earnings reflects a high risk of getting contracts. The federal government isn't known for moving quickly (except, maybe, when there is a disaster). So, for now, the future is very cloudy for Duratek, and the stock, up 25.8% over a year ago, looks like it might ease further.
Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click here to see T he Motley Fool's disclosure policy.
