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This evening, looking at the list of top % gainers on the NYSE, I saw that Harsco Corporation (HSC) had made the list. HSC closed at $51.27, up $2.66 or 5.47% on the day. I believe Harsco (HSC) deserves a spot on this blog. I do not own any shares nor do I have any options on this stock.
HARSCO (HSC) IS RATED A BUY
What exactly does this company do?
According to the Yahoo "Profile" on Harsco, the company
"...provides industrial services and engineered products primarily to steel, construction, railways, and energy industries. It operates in three segments: Mill Services, Access Services, and Gas Technologies."
How did they do in the latest quarterly report?
It was the announcement of 1st quarter 2007 results this morning before the market opened that resulted in the sharp price appreciation today. First quarter sales increased 23% to $840 million from sales of $682 million last year. Diluted earnings per share of continuing operations came in at $.54, up 39% from $.39/share in the same quarter in 2006.
In the same report, the company also raised guidance for 2007 from $2.52 to $2.57 to the new estimates of $2.69 to $2.74/share.
The company beat expectations of $.43/share on revenue of $769.1 million. Thus, the earnings report really was what I call a "trifecta-plus". Everything was Goldilocks said "just right"....increasing revenue, increasing earnings, beating expectations and raising guidance. What else could an investor want? Not much apparently, as the stock price charged ahead in an otherwise anemic market.
How has the company done longer-term?
For that I turn to the Morningstar.com "5-Yr Restated" financials on Harsco. Here we can see the record of steady revenue growth from $1.98 billion in 2002 to $3.4 billion in 2006. Earnings during this period rose just as consistently from $1.11/share in 2002 to $2.33/share in 2006. The company also pays a dividend (an added plus!) with $.50/share paid in 2002, increasing it each year to $.65/share in 2006. Meanwhile, the company has kept a pretty tight hold on the outstanding shares with 81 million in 2002 increasing only to 84 million, less that a 5% increase, by 2006. During the same period, the revenue almost doubled and the earnings climbed by more than 100%.
Free cash flow has been positive and improved recently. The company reported $66 million in free cash flow in 2004, $25 million in 2005 and $69 million in 2006.
The balance sheet, as reported by Morningstar.com, appears adequate with $101.3 million in cash and $1.13 billion in other current assets. This total of $1.23 billion, when compared with the $.91 billion in current liabilities, yields a satisfactory current ratio of 1.35. The company has an additional $1.27 billion in long-term liabilities.
What about some valuation numbers on this stock?
Examining the "Key Statistics" on Harsco from Yahoo, we find that this is a mid cap stock with a market capitalization of $4.31 billion. The trailing p/e is a reasonable (imho) 22.04, with a forward p/e (fye 31-Dec-08) even nicer at 17.68. The PEG ratio (5 yr expected) comes in at what I view as an acceptable 1.35.
Reviewing the Fidelity.com eresearch website, we can see that Harsco (HSC) comes in with a reasonable Price/Sales (TTM) ratio of 1.19, below the industry average of 1.39. However, the profitability figure of a Return on Equity (TTM) of 17.74%, is not as impressive as the industry average of 23.55%.
Yahoo shows that there are 84.03 million shares outstanding with 83.49 million that float. The company has a relatively low number of shares out short: 669,080 shares, as of 3/12/07, representing 0.8% of the float or 1.7 trading days of volume.
The company pays a forward dividend of $.71/share yielding 1.5%. The company also just split its shares 2:1 on March 21, 2007.
What does the chart look like?
If we examine the "Point & Figure" chart on HSC from StockCharts.com, we can see that except for a dip from May, 2003, when the stock was trading at around $20, down to a low of $11.50 in October, 2003, the stock has subsequently traded strongly higher. This chart looks strong to me, if perhaps a bit overextended (?).
Summary: What do I think?
In a word or two, I like this stock a lot. The latest quarter's earnings (out today) were quite strong, beating expectations and the company went ahead and raised guidance. The past several years have had the company growing revenue steadily, increasing earnings regularly, and consistently increasing the dividend. That is often a winning combination! The company is generating free cash flow, has maintained the # of shares outstanding stable, and has a satisfactory balance sheet.
Valuation-wise, the Price/Sales is reasonable and the Return on Equity is close to the industry average. Finally, the chart looks strong. This company deserves a spot in my "vocabulary". I have not sold any stocks at a gain entitling me to add a new position, and in fact, at 20 positions, I am currently 'maxed-out'.
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Updated: Wednesday, 25 April 2007 9:47 AM CDT