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Why Heritage-Crystal Might Be a Sparkling Selection

By Brian D. Pacampara, CFA - Sep 27, 2013 at 2:35PM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Heritage-Crystal Clean (HCCI 0.71%) climbed 2.5% this morning after Wunderlich Securities upgraded the industrial waste management specialist to buy from hold.

So what: Along with the upgrade, analyst Michael Hoffman boosted his price target on the stock to $20 per share (from $16), representing about 11% worth of upside to yesterday's close. Hoffman cited increased gasoline capacity at the company's Indianapolis re-refinery (which should be available in 2014) and lower costs for the upgrade, giving investors some decent visibility into the company's near-term profitability.

Now what: Wunderlich expects the profitability of used oil to gradually improve over the rest of the year. "The plant thru-put is already up 10-12 million gallons with the addition of higher capacity air pollution equipment in the third period," writes Hoffman in a note to clients. "Couple that with better lube prices and lower used oil collection costs ... and HCCI is poised for a 2H13 upside surprise vs. the consensus outlook, particularly in the fourth period." Given that the stock is already flirting with Wunderlich's price target of $20 and trading at a forward P/E of 25, however, Heritage's risk and reward trade-off doesn't seem all that enticing to this Fool. 

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Heritage-Crystal Clean, Inc Stock Quote
Heritage-Crystal Clean, Inc
HCCI
$35.22 (0.71%) $0.25

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