NEW YORK (AP) -- Heckmann Corp. shares tumbled Monday after a Wedbush analyst downgraded the water management company's stock to "Underperform" from "Neutral," predicting that it will be forced to cut its profit outlook for the year in the face of increasingly weak market conditions.
THE SPARK: David Rose, who also cut his price target for the stock by 50 cents to $2.50, said that based on recent data, he thinks the company's 2013 results won't meet average Wall Street predictions. He noted that the share prices of other companies in the sector already reflect tough market conditions and predicted that Heckmann's shares will follow their lead after the company eventually cuts earnings predictions.
THE BIG PICTURE: Pittsburgh-based Heckmann provides energy companies with water for hydraulic fracturing. In this process, companies inject a pressurized mixture of water, sand and chemicals into the earth to fracture shale formations to access oil and gas. Heckmann also treats the wastewater generated during the process.
The practice has helped increase access to natural gas and oil but is under scrutiny for its environmental impact.
Over the past year, natural gas companies have been forced to cut production in the face of record-weak prices, stemming from lower-than-expected demand and an oversupply of gas on the market.
The weak prices have also prompted companies like Heckmann to shift their resources toward oil-focused formations such as North Dakota's Bakken formation, Rose said.
Last fall, Heckmann acquired Power Fuels for roughly $381 million in a deal that increased its foothold in the fracking market.
THE ANALYSIS: Rose said the shift has resulted in a glut of assets in those areas, while at the same time, energy companies have cut their spending. As a result, prices at Heckmann's highly profitable equipment rental business have taken a hit and its utilization rates have fallen by about half.
The analyst said there's no evidence to show that this dynamic will change anytime soon and as a result, he believes Heckmann's 2013 profit and revenue will be "well below expectations."
THE SHARES: Down 35 cents, or 8 percent, to $4 in heavy afternoon trading, after dropping as low as $3.80 earlier in the day. Over the past 52 weeks, the stock has traded between $2.60 and $5.49.