A few years ago it was the best of times for ceramic proppant producer CARBO Ceramics Inc. (CRR) as strong demand and tight supply pushed earnings to record highs. But international imports are hurting pricing power and 2013 estimates are being slashed.
CARBO Ceramics is the world's largest maker of ceramic proppant which is used during the hydraulic fracturing process. In the last couple of years, its product was one of the hottest in the energy industry. But then dry gas prices came down and international competitors increased production of proppant.
In 2011, earnings soared to a record of $5.61 per share but it's been downhill since then. In 2012 earnings fell 17.6% to $4.62. They're expected to fall another 25% to $3.45 in 2013.
As cheaper exports came onto the market, CARBO has cut ceramic proppant pricing by 14% in the last year in order to maintain its volume. It is also pushing back the opening of further capacity until 2014.
After it missed the first quarter Zacks Consensus Estimate by 14%, analysts cut full year guidance. 8 estimates have been cut for 2013 in the last 30 days. That has pushed the Zacks Consensus down to $3.45 from $4.27.
No Rally in the Shares
While the rest of the stock market hits new highs, CARBO's shares have been mired in a 2-year slump.
Some may think this is buying opportunity. But shares are trading with a forward P/E of 20. That's not exactly cheap when you compare it to bigger, and more diversified, oil service companies like Halliburton (HAL) which is a Zacks Rank #2 (Buy) trading at 13.5x.
CARBO Ceramics is a Zacks Rank #5 (Strong Sell). In the near term, CARBO will probably continue to struggle. The Zacks Rank, however, is a short term recommendation.
Over the longer term, analysts aren't as bearish. 2014 can't come soon enough.
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