Tampa, Fla.-based Quality Distribution, a bulk transportation company, is currently an undervalued company poised for significant organic growth, according to an analysis conducted recently by BB&T Capital Markets.
The firm predicts that Quality will grow its three core businesses — chemical, energy and intermodal transportation — in the single- to double-digits, with the biggest gains coming from the energy sector.
BB&T pointed out, however, that Quality is looking ahead after a sluggish third quarter. Operating revenue fell by $3.7 million, year-over-year, though adjusted growth was up by 14.5 percent compared to 2011. These results were due to a termination in its contract with an independent affiliate, which cost the company $3 million, the acquisition of assets and assorted unanticipated costs, according to the firm. A stock sell-off also partly caused the company not to hit its third-quarter goals.
"Our third quarter proved to be a real challenge, with the highly unusual circumstance whereby all three of our segments reported lower than expected results. Based on what we see today, especially with the impact of Hurricane Sandy in the Northeast, our fourth quarter will be equally challenging," Quality’s Chief Executive Officer Gary Enzor said at the time. "Despite these issues, we anticipate improved year-over-year performance in all of our segments in 2013. Given that we now have an excellent footprint in the energy space, our plans over the near-term are to optimize our existing and recently acquired operations, as well as generate free cash flow to reduce debt."
BB&T embraced Enzor’s pledge, seeing room for significant growth in the company. Quality's chemical logistics arm, which will account for 63 percent of revenues next year, will be fueled by low natural gas prices. Accounting for 22 percent of 2013 activity, the energy business will benefit from U.S. exploration of domestic oil and gas production. Quality is operating at five shales — Woodford, Utica, Bakken, Eagle Ford and Macellus — providing it with a diverse base for energy supply, BB&T said. Quality’s recent acquisitions of disposal wells will also help it see growth from these sites. Quality’s intermodal business will benefit from the continued industry shift from drums to intermodal containers, BB&T predicted.
“In 2013, we believe management will begin to leverage the energy logistics acquisitions, driving meaningful revenue and profitability growth,” BB&T wrote in a guidance report. “With Quality’s scale, we believe each business segment offers significant organic growth for the next few years.” - Jon Ross