An Awful Pattern Sends U.S. Silica Holdings Inc.’s Stock Down 27.7% in September

Oil, analysts, and peers fueled a big sell-off in U.S. Silica Holdings Inc. last month.

Matthew DiLallo
Matthew DiLallo
Oct 2, 2015 at 9:23AM
Energy, Materials, and Utilities

What: Shares of U.S. Silica Holdings (NYSE:SLCA) took a beating last month falling 27.7%. The stock was hit from all sides as oil prices slid 8.5%, it received two analysts downgrades, and one of its peers completely withdrew its guidance as it no longer has any visibility into the future.

So what: While most of us look forward to Friday, that day only brought bad news for U.S. Silica last month. It all started on Friday, Sept. 11, when news came out that Jefferies had downgraded the stock from hold to underperform. It also gave the company a $14 price target saying that it has both near-term and long-term concerns for the sand industry. That downgrade sent the stock down 10%.

A week later another downgrade arrived, this time from RBC, which moved the stock from outperform to sector perform. Further, it slashed its price target from $28 down to $20, citing a view that a recovery in the oil market won't happen until after 2016 at the very earliest. As such, it sees little upside in the stock, which led to another 6% sell-off.

Finally, on Friday, Sept. 25, one of U.S. Silica's peers withdrew its guidance for the year citing difficult market conditions and the prolonged oil market downturn. That news was pretty much the final nail in the coffin on the company's rough September as we see in the chart below.

SLCA Chart

SLCA data by YCharts.

Now what: It is going to continue to be a tough market for frack-sand producers like U.S. Silica. Overall, U.S. drilling activity is down more than 50% from its peak as measured by the rig count, which is putting a lot of downward pressure on sand prices. It will likely be quite a while before activity starts to improve as producers will need much higher oil prices before they'll ramp up activity. So, while this could be a good buying opportunity for long-term investors, in the near term it will likely be a really bumpy ride.