MEA - Metalico - Reports the Best Quarter in the Company's History

Metalico reported a record quarter as scrap metal prices soar on strong demand. The company has surprised on earnings on average of 17.95% over the last four quarters. Metalico's forward P/E is 14.36.

Full Analysis

Metalico, Inc. (MEA) is a scrap metal processor headquartered in New Jersey. Metalico operates in two segments: ferrous and non-ferrous scrap metal recycling, and lead fabrication.

Metalico, a Zacks #1 Rank (Strong Buy), has 14 recycling facilities in New York, Pennsylvania, Ohio, New Jersey, Texas and Mississippi. MEA also has five lead fabrication plants in Alabama, Illinois, Nevada and California. Scrap metal facilities serving the U.S. and Canadian markets operate out of the Great Lakes facilities.

Refractory metals, such as molybdenum, tungsten and tantalum, are recycled at the central Pennsylvania facility.

In Newark, New Jersey, the company processes used catalytic converters and recycles platinum, palladium, rhodium, known as Platinum Group Metals. The metal is purchased from various sources including manufacturers, small scrap dealers, demolition contractors, and peddlers. The scrap is then sorted and sold to mills, furnaces and foundries.

Metalico Reports the Best Quarter in the Company's History

On Apr 24, Metalico reported record first-quarter earnings that blew by Wall Street estimates by 53.85%. Net income rose 67% to $6.1 million, or 20 cents per share, compared to $3.1 million or 12 cents per share in the first-quarter 2007. Analysts expected 13 cents per share.

Sales increased 230% to $170.5 million from $51.8 million in 2007.

The scrap metal segment led the profit surge in the quarter. Quarter-over-quarter unit volume increased 82% for ferrous and 95% for non-ferrous metals. Prices of both also soared. Ferrous metal prices rose 50% quarter-over-quarter while non-ferrous increased 166% during the same period. Lead fabrication volumes remained unchanged.

Metalico Continues to Expand

The company has been in acquisition mode. On Jan 29, the company closed on the purchases of American CatCon, LLC and American CatCon Holdings LLC, two catalytic converter recycling facilities located in Texas and Mississippi. MEA saw significant synergies in the first quarter from that acquisition.

On Apr 24, MEA announced further expansion through an agreement to acquire a major family-owned metal recycling operation in Western Pennsylvania for $76 million.

MEA Is Bullish About the Second Quarter

The company didn't provide guidance for the second quarter but scrap metal pricing continues to be in the company's favor. According to MEA, ferrous scrap metal pricing has increased further during the second quarter, hitting record levels in April. In the non-ferrous category, prices have settled into a trading range but are still trading at much higher levels than a year ago.

Additionally, Platinum Group Metal prices hit record highs during the first quarter on supply issues related to the power outages in South Africa and concerns over mine operations in that region. Prices in the group have declined about 10%, but remain at historically high levels.

Prices in the lead fabrication segment appear stable. The company said it expects to see seasonally higher unit volumes that could, however, be impacted by the overall slowdown of the US economy.

Analysts Raise Estimates for 2008

Consensus estimates for the full year have been rising in the last 30 days. Two out of two covering analysts raised by 18 cents to 93 cents from 75 cents a share. For the second quarter, analysts have kept consensus estimates steady at 25 cents per share.

Metalico's 2008 P/E is 14.36. Its price-to-book is 2.65. The company's return on equity in 2007 was 12.6%.

Content Courtesy: Zacks Investment Research

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