NEW BEARISH Plays
Hi-Crush Partners - HCLP - close: 29.60 change: +0.12
Stop Loss: 32.05
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 21, 2015
Time Frame: 8 to 12 weeks (stock traders)
Average Daily Volume = 384 thousand
New Positions: Yes, see below
Why We Like It:
There has been some speculation that the low in crude oil prices back in March this year might be a bottom. Yet the impact of oil's slide from its 2014 highs will be felt for months, if not years to come. Oil and gas companies have been cutting spending plans and that's going to hurt the oil services companies like HCLP.
HCLP is in the basic materials sector. According to the company, "Hi-Crush is an integrated producer, transporter, marketer and distributor of high-quality monocrystalline sand, a specialized mineral that is used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells. Our reserves, which are located in Wisconsin, consist of 'Northern White' sand, a resource that exists predominately in Wisconsin and limited portions of the upper Midwest region of the United States. Hi-Crush owns and operates the largest distribution network in the Marcellus and Utica shales, and has distribution capabilities throughout North America."
HCLP has delivered some impressive revenue growth over the past few quarters. Yet it can't seem to nail the earnings number. Last November they reported revenues grew +92% from a year ago. This February, their Q4 report, showed revenues were up +104%. Their most recent earnings report was May 6th and revenues were up +44%. Yet all three quarters saw HCLP miss the earnings estimate.
Wall Street was expecting HCLP to deliver a profit of $0.78 a share. HCLP's Q1 earnings were only $0.60. Robert Rasmus, Co-CEO at HCLP, commented on his company's results, saying,
"The first quarter was challenging due to the decline in drilling activity and adverse weather conditions, particularly in February, in the Northeast.
While we see the impact of fewer well completions and reduced demand for sand continuing through the second quarter, the long-term fundamental trends for sand demand remain favorable."
Shares of HCLP have seen multiple downgrades and reduced price targets over the last few weeks. In April Moody's Investor Services said, "the negative outlooks for Exploration and Production and Oilfield Services sectors will increasingly lead to weakness among proppant companies. Moody's analysts expect to see EBITDA decline 10% - 20% for rated proppant companies based on their base-case oil, natural gas and natural gas liquids price assumptions and expectations of continued volatility in the sector." (source).
Last week David Einhorn, the influential hedge fund manager at Greenlight Capital, was bearish on the fracking-related stocks. Then a few days later Credit Suisse issued a bearish outlook on HCLP. They reduced their rating on HCLP from outperform to neutral and slashed their price target from $60 to $35. The Credit Suisse analyst is worried that margins could come under pressure due to plenty of supply. According to Credit Suisse, "as we see an extended period of subdued drilling and completions activity in the face of a prolonged low oil price environment; in the long term, we see an industry that is being paid essentially for its logistics infrastructure rather than for the value delivered by the commodity itself."
Dividend investors might be tempted to own HCLP since the company has a big dividend yield (currently about 9%). Why own HCLP now when you might get better entry point at a lower price? Shareholders may get a 9% yield but they just lost 25% of their capital with the recent sell-off from April's peak.
The point & figure chart is bearish and forecasting at $24.00 target.
We think HCLP goes lower. Shares are currently chewing through support in the $29-30 area. Tonight we are suggesting a trigger to launch bearish positions at $28.90. More conservative traders may want to wait for HCLP to breakdown below its January 2015 low of $28.23 before initiating positions.
Trigger @ $28.90
- Suggested Positions -
Short HCLP stock @ $28.90
- (or for more adventurous traders, try this option) -
Buy the JUL $30 PUT (HCLP150717P30) current ask $2.25
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike