U.S. Silica Expected To Benefit From Fundamental Tailwinds

RBC expects U.S. Silica Holdings Inc SLCA to benefit from fundamental tailwinds and sees potential for pricing power, share gains, and additional M&A as it maintained its Outperform rating on the stock.

The tailwinds include "growing market penetration of its newly acquired SandBox technology, increasing proppant intensity, and continuing industry mix shift to regional sand."

The brokerage noted that the Street isn't giving full credit for SandBox growth potential. SLCA sees 30 percent market share for SandBox.

"At 30% market share, management believes SandBox EBITDA could approach $250mn if total raw frac sand demand returned to peak levels of 60–65mn tons annually. We estimate Sandbox contributes EBITDA of ~$100mn in 2018," analyst Kurt Hallead wrote in a note.

In addition, SLCA expects to push small price increases in frac sand in areas where demand has caught up to the low-cost supply available to that particular region.

Meanwhile, Hallead raised his 2016/17/18 EPS estimates to ($0.47)/$1.18/$3.12 from ($0.59)/$0.84/$1.93 on an increased growth forecast for Sandbox and a slight increase to third/fourth quarter volume growth estimates. Street estimates are ($0.66)/$0.41/$2.07, respectively.

The analyst also upped his price target to $56 from $44; shares were recently down 3.46 percent to $43.49.