CARBO Ceramics (CRR)
By Brendan Coffey, Editor of Cabot Energy Investor
Freom Cabot Wealth Advisory 9/19/11
CARBO Ceramics (CRR) is the world's largest producer of ceramic proppant. Proppant does just what it sounds like it does--it props open rock. Once rock is fractured, usually by a controlled explosive device, the rock literally needs to be propped open to allow the flow and pooling of the target liquid to occur.
Proppant has historically been sand, generally easily available and cheap. However, industry studies have found that sand, being of irregularly sized granules, packs in tightly and therefore isn't an ideal for maximizing flow. Sand is improved by coating it with resin, making for a slightly better and slightly pricier proppant, but it is still not ideal.
CARBO supplies leading oil services companies including Schlumberger, Hughes Oil and Gas and many other independent oil and gas exploration firms. The Houston-based company makes a series of eight different types of proppants, some covered with resins for wells that need a slicker proppant, others made of bauxite for higher pressure environments, others of smaller size for various depths and densities of rock.
CARBO's great advantage: data shows that wells that use its ceramic proppant produce twice as much oil and gas as similar wells using basic sand proppants. This is especially important in unconventional fields such as the Bakken in the Dakotas, where that production data was collected.
CARBO also sells software for modeling how to fracture rock, and recently added a business that provides quick-curing polymer linings used in oil and gas storage tanks and on the low walls that surround tanks and wells to prevent catastrophic spills from spreading.
CARBO is also expanding its resin-coated business, betting that it can convince users of sand to pay a little more for resin, and then eventually convert many of them into buying the costlier ceramic proppant. Right now, it's believed that ceramic proppant is used by 25% of the world's proppant market, with resin used by 15% and plain old sand by 60%.
CARBO generated $473 million in revenues in 2010, and has beaten expectations with over $300 million sales the first half of 2011. I expect the company to generate $5.51 in earnings per share for 2011, well over 2010's $3.42 net income.
CARBO has held up well in the recent market turmoil, slipping from a high of 180 to find strong support around 150. Today around 154, it's near where Cabot Global Energy Investor bought shares when we featured CARBO in June. Subscribers collected a 20-cents per share dividend along the way, but the real profits are to be made in the price growth of CARBO, which could be challenging 200 by year's end.
Editor's Note: Brendan Coffey is the editor behind Cabot Global Energy Investor, which selects the top energy stocks each month and combines them with Cabot's proprietary market timing indicators to score winning results for subscribers. With new energy technologies coming to the forefront, now is THE time to profit from the top stocks in this sector. Learn how you can be an early investor in this high-potential area today. Click here to get started.
Analyst and Editor of Cabot Green Investor
Brendan Coffey is a member of the Cabot investment team and editor of Cabot Green Investor. A veteran financial journalist, Brendan has spent more than a decade writing about investing for publications including Barron's, Forbes, The Wall Street Journal and a number of private-client brokerage newsletters.
|CARBO Ceramics (CRR)
Energy Center II
575 North Dairy Ashford Road Suite 300
Houston, Texas 77079
|Index Membership: N/A
Sector: Basic Materials
Industry: Oil & Gas Equipment & Services
Full Time Employees: 806