. THE NAPEAGUE LETTER
Sunday, July 6, 1997
Editor: Bob Davis napeague.com
Kaneb Services, Inc. - (NYSE:KAB)
For the last several quarters, Kaneb Services (NYSE:KAB) has produced
an impressive series of positive earnings surprises:
- In the fourth quarter of 1996, analysts were expecting $.04 per
share - Kaneb Services delivered $.06.
- In the first quarter of 1997, Analysts were looking for $.03 per
share - Kaneb Services delivered $.04.
In fact, Kaneb Services's earnings have been rising steadily for the
last several years, as shown by this chart.
1996 1995 1994 1993
----- ----- ----- -----
Earnings per Share $0.19 $0.10 $0.02 $(0.01)
And there are solid reasons to expect that this growth will continue
well into the future.
But before I outline these reasons, I would like to explain that this
New York Stock Exchange listed Company occupies two important and
inter-related niches in an industry whose importance can only grow in
the coming years.
- Its Furmanite business unit provides diagnosis and on-line
repairs of leaks in valves, pipes and other components of piping
systems and related equipment.
- Kaneb Pipe Line operates over 2,000 miles of petroleum pipe lines
and specialty liquids terminals which make up the third largest
independent operation in the US.
Both of these operations are expanding rapidly, through internal
growth and acquisitions.
- Furmanite has just announced its acquisition of its licensee who
services the "expanding markets" of Australia and New Zealand,
and in December 1996, it announced a joint venture which has
added to its already-impressive technology base.
- Kaneb Pipe Line has recently added additional terminal facilities
which are synergistic with its current operations.
Kaneb is structured in such a way that the holders of Kaneb Services
common stock will receive substantially greater benefits from this
growth.
- The pipelines and terminals are very capital-intensive, and
normally this need for capital would put a brake on potential
growth.
- However, the pipelines and and terminals are owned by Kaneb
Pipeline Partners, which is also traded on the New York Stock
Exchange under the symbols KPP and KPU. Shareholders in the
Partnership receive a largely "fixed" dividend, while
shareholders in KAB receive the benefits of growth - in the form
of accelerated earnings per share.
This is generally referred to as "leverage", and this leverage is
working effectively for KAB shareholders.
The Napeague Letter projects that Kaneb Services will earn $.27 per
share in 1997 - a 42% increase over 1996. An analysis of the Company's
balance sheet shows that it is strong enough to support this growth.
Likewise, The Napeague Letter has analyzed the Company using a variety
of fundamental valuation tools, and believes that KAB can support a
market price of at least $6.00 per share based on trailing earnings,
and can justify a much higher market value based on both its projected
future earnings and on its ability to generate cashflow.
Technical analysis indicates that KAB may be primed for another move
upward in the next few weeks. the stock has steadily appreciated since
early 1995, but this growth has come in spurts. there are strong
indications that such a spurt may begin shortly.
This is a Summary of a complete Analysis of Kaneb Services which can
be found at The Napeague Web Site at
napeague.com
I encourage you to read the entire Analysis as well as the Company's
investor relations information and its reports to the Securities &
Exchange Commission prior to making any decision to invest in this or
any other Company.
NOTICE
This analysis is based on publicly-available information, and is in no
way warranted by me as to accuracy or completeness. I do not guarantee
to advise you as to any change in this information. I currently am a
stockholder in this Company and may from time to time purchase or sell
this Company's securities. I otherwise have no affiliation with this
Company, and I am not compensated by it in any way whatsoever. |
