To All, PDGE just got written up by Individual Investor today:
PDG ENVIRONMENTAL INC is involved in asbestos abatement and related services.
Clean Up with PDG Environmental (7/10)
PDG Environmental (Nasdaq Bulletin Board: PDGE) is looking to rebound from its woes when the real estate market was slumping. As a member of the Nasdaq bulletin board, PDG has almost zero exposure to the
Street but is known to many individual investors. The company has built an impressive backlog of business and produced spectacular earnings announcements in the process. Why is PDG in the Dumps?
Although its backlog is over $35 million, this business is not guaranteed and could dry up at the snap of a finger. However, PDG -- which has a good chance of earning $0.30 per share this year -- trades at only about $1.50 per share. In addition, its CEO is on a mission to get the stock back on the Nasdaq Small Cap Market. A gamble on PDG could pay off big.
About the Company
PDG is involved in asbestos abatement and related services dedicated to helping its commercial, industrial, and government clients comply with environmental laws and regulations. PDG is not in a sexy business to be sure, but there has been a recent resurgence in the asbestos abatement business due to two reasons: a stronger economy and a comeback in the real estate market. During the 1980s, there were scores of companies cleaning up asbestos, until the late 1980s and early 1990s when the U.S. real estate market became depressed. The recession of the early 1990s led to over-capacity in the industry. Only one-third of the asbestos abatement companies survived during the past decade, PDG being one of them. As a result, competitive pressures have gone down, allowing PDG to land more contracts.
Clients
Most of PDG's clients are larger real estate companies, but the client base includes well known names like Occidental Chemical (NYSE: OXY) and CBS (NYSE: CBS)(formerly Westinghouse). Because PDG's business is
fairly simple, it allows margins to stabilize because most expenses are fixed costs. If there is any cut in overhead, most of that savings flows right to the bottom line. Taxes are the only other expense.
Because PDG has survived downturns, things should only get better from
here. The asbestos abatement business (a $3.3 billion industry) is highly fragmented. Most projects that PDG lands are around $50,000, but recently PDG's backlog has risen sharply due to large projects, including a recent renewal of a four term contract worth over $1 million for Bell Atlantic (NYSE: BEL), MCI (NASDAQ: MCIC), Texaco (NYSE:TX) and Westmoreland Regional Hospital.
Revenue and Earnings
This strong backlog has led PDG to record results, with revenue up 200% and net income higher by 250% in the first quarter ended April 30, 1998. The company had $13.4 million in sales, which resulted in $0.07 earnings per share. At that run rate, the company could hit $52 million in sales and $0.28 per share for the full year. Assuming that run rate, PDG shares are trading at a mere 5 times estimated earnings.
PDG was delisted from the Nasdaq Small Cap Market in August of 1996
due to insufficient capital. A goal for CEO John Regan is to rejoin the Nasdaq Small Cap Market, so brokers can sell the stock again. To qualify for the listing, PDG must meet certain financial requirements. PDG has met all the requirements except for the minimum bid price, which must be at least $4 per share.
PDG management continues to open new offices across the U.S., either
from scratch or via acquisitions. PDG presently has eight offices, targeting areas where real estate is hot. One of PDG's most recent acquisitions, which took place in December 1997, was of an office in Phoenix, Arizona. This will enable PDG to attack the southwest market, which has been robust in Arizona and Texas.
Price Target
PDG's earnings should gradually improve each quarter. CEO John Regan is comfortable growing at 25% on the top and bottom lines. Assuming a
multiple of 20, which is a discount to its projected growth rate, PDG shares could hit $5 per share by the end of 1998. Longer term, PDG could earn $0.35 per share in fiscal 1999, ending January 31,1999. Again, assuming a multiple of 20 times those earnings estimates, PDG stock could reach $7 within 12-months, representing possible appreciation of about 367% from present levels.
Analyst: Adam Lowensteiner
PDGE Analysis Archive
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