Stockchase Opinions

Don Lato Hi-Crush Partners LP HCLP-N BUY Jun 27, 2018

They're in the sand business--fracking. The long-term outlook for fracking is positive. There are more fracks per well, and more sand per frack used. The problem is sand is not gold or copper--there's a lot of it out there. One advantage for HCLP is that only they have permanent sand right in the Permian Basin. At some point there will be consolidation for this industry. You get paid nicely to wait at a 7.5% dividend, which they will likely increase this year. They're starting to generate good cash flow.

$11.900

Stock price when the opinion was issued

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COMMENT

This is frac sand. Keep in mind that it is an MLP, which means you are going to get a K-1 and will delay your tax return. The sand they have is the sand that everybody likes, and is crucial in fracing. Thinks their future is good. They pay a very high dividend, which is why he bought it. Had a big run up last year, so he would be a little careful about buying it for any other reason than the dividend. Feels this is the best of the companies.

TOP PICK

They are involved in fracing sand. Over the past five years investors had been disappointed. They recently opened a mine in the Permian – the first operator there. They have locked up capacity on good long-term contracts. They see a 10% dividend increase over the year. They are projecting a 25% increase in frac sand usage. If you want to be in energy this is the one. Yield 7.5%. (Analysts’ price target is $16.36 )

HOLD

The chart is slowly progressing bullishly. He would continue to hold it, but not necessarily add new money. (Analysts’ price target is $16.66)

PAST TOP PICK

(A Top Pick April 20/18 - Up 0%) Stock is at the same price. A big dividend. A month ago, they announced that they would be converting to a corporation from a master limited partnership. It’s paying 3 dollars in dividends in the process.

TOP PICK

A month ago, they announced that they would be converting to a corporation from a master limited partnership. It’s paying 3 dollars in dividends in the process. Very well position in the fracking industry. They are also ding logistics. Very well managed. (Analysts’ price target is $16.49)

HOLD
This frac-sand player is in a sector that has been decimated lately. He will continue to hold this one. Still on schedule to pay a dividend of $0.22 per share early next year. Bringing on a new mine has been easier than people thought, bringing more competition that expected. This could be a prime candidate for a tax-loss selling play. They are still forecasting growth next year.
PAST TOP PICK
(A Top Pick Apr 20/18, Down 65%) It's gone through turmoil over the last year. A great, well-managed company, but the problem is lots of new supply entering the market in the past year. They've had to cut operations, but retain loyal contracts. Their EBITDA remains flat. They also confused the market 9 months when they talked about converting to a corporation so they boosted their dividend, got into problems, then had to cut it. Never good. They disappointed a lot of people. April 11 is the date when shareholders vote on the corporation; a lot of limited partnership funds won't be able to own this if they turn into a corporation. HCLP remains a strong player in this sector, though.
PAST TOP PICK
(A Top Pick Aug 23/18, Down 86%) He will continue to hold it for a tax loss opportunity later this year. A plan to bolster the dividend about a year ago did not materialize. He underestimated the amount of supply in this sector as sand is actually easy to find in the Permian region. US drilling has fallen sharply and this has put bearish pressure on sand demand. It is still EBITDA cash positive, but it will still face issues going forward.
DON'T BUY
The fundamentals of sand fracing has changed dramatically. The spending outlook for fracing is also looking very poor for next year. He would not take the risk.