ANALYSTGROUP.COM Initiates Coverage of American Eco Corporation
Initial Recommendation: STRONG BUY
American Eco Corporation (Nasdaq : ECGOF)
Recent Price: $2.4375
Daily Average Volume (3 Month Avg.): 142K
Market Cap: $ 54 million
52-Week Range: $1.56-$12.25
Outstanding Shares: 21.6 million
Active Float: 7.81 million
Estimated 98 Revenue: $362.2 million (ended on Nov. 30, 1998)
Estimated 98 EPS: $0.43 (ended on Nov. 30, 1998)
Projected 99 Revenue: $450.3 million
Projected 99 EPS: $1.19
Industry EPS: $0. 34
Trailing PE (1997): 2.34
Current P/E (last 12 months): 5.67
Forward P/E (1999): 2.1
Industry P/E: 27.49
Price/Book: 0.44
Industry Price/Book: 5.46
Price/Sale: 0.16
Industry Price/Sale: 1.58
Revenue/Employee (TTM): $439.585
Industry Revenue/Employee (TTM): $172.979
Net Income/Employee (TTM): $14.936
Industry Income/Employee (TTM): $10.635
Net Profit Margin (%, 5 year average): 5.70
Industry Profit Margin (%, 5 year average):3.59
Revenue Growth Rate (%, 5 year average): 202.18
Industry Revenue Growth Rate (%, 5 year average): 31.97
Earning Growth Rate (%, 5 year average): 90.04
Industry Earning Growth Rate (%, 5 year average): 34.88
Quick Ratio (MRQ): 2.39
Industry Quick Ration (MRQ): 0.64
Current Ratio (MRQ): 4.46
Industry Current Ratio (MRQ): 1.11
Debt/Equity (MRQ): 0.99
Industry Debt/Equity: 1.11
Price/Cash Flow (TTM): 2.67
Industry Price/Cash Flow (TTM): -11.13
% Owned Institutions: 14.5
% Owned Management: 48.9
Insider Trend Index: Very Positive
Short Interest: 44 K
Recommendation: Strong Buy
Target Price: $7 to $12 for next 6 to 24 months
BUSINESS SUMMARY AND CORPORATION BACKGROUND: American Eco Corp. provides
industrial support services and specialty fabrication capabilities to oil
refining, off-shore drilling, petrochemical processing, electric utilities
and pulp and paper manufacturing industries. The company is a leading
North American provider of single-source industrial support and specialty
fabrication services in the energy, pulp and paper, and power generating
industries. The Company entered into its current lines of business in
November 1992 when it acquired Eco Environmental, and it has continued to
expand its service capabilities, geographic presence and customer base
primarily by acquiring other companies. The Company acquired nine businesses
between fiscal 1993 and fiscal 1997, and its revenues grew from $7.6 million
in fiscal 1993 to $220.4 million in fiscal 1997 primarily as a result of
such acquisitions. In fiscal 1997, the Company accelerated its
acquisition program by adding Chempower and CCG, while disposing of Eco
Environmental and Environmental Evolutions. The Company is reevaluating
its continued interest in Dominion Bridge.
RECENT DEVELOPMENTS: On November 17, 1998, ECGOF announced that it has
purchased the balance of the interest held by the Steen Pipeline subsidiary
of Dominion Bridge in American Eco's joint venture to install 54 miles of
42'' high pressure pipe for Trans Canada Pipelines. This purchase is
retroactive to the beginning of the project on June 15th, 1998, giving
American Eco 100 percent of the revenue and income from the project. The
contract for US $47.0 million is expected to be substantially complete at
the end of November. American Eco indicated that the Receivers for Steen
Contractors, Ltd. wished to windup liquidation of the assets and made a
favorable offer to American Eco to acquire the Steen position. The buyout
price was undisclosed.
On December 14, 1998, ECGOF announced that it had been awarded US$ 500,000
in punitive damages and US$ 75,000 in direct damages in its lawsuit against
an individual who hid behind an Internet posting alias as ''PMKK1''. The
judgment in favor of American Eco was for liable and slander through false
Web and bulletin board postings about the Company and its executives.
American Eco claimed that the falsehoods circulated on the Internet had
damaged its reputation with the investment community and caused investors to
short its publicly traded shares by creating doubt about statements made by
American Eco management. In addition, Mr. David Norris, former CFO of
American Eco, was awarded $5.0 million in punitive and $2.75 million in
direct damages in the same lawsuit against the individual operating under
the alias of ''PMKK1'', for untrue allegations concerning Mr. Norris'
executive history, which were posted on the Internet, resulting in his
suspension from his position.
On December 16, 1998, ECGOF announced that Michael E. McGinnis, and J.C.
Pennie, on behalf of other executives and themselves, have signed an option
to purchase up to 1.0 million shares from various shareholders of American
Eco. The purchase of the shares is expected to be funded privately. In the
news release, American Eco, President and CEO Michael E. McGinnis, stated,
''American Eco is now back on the track toward its former revenue and EPS
growth. Management's belief in the Company's future is underlined by our
decision to acquire a major share position.''
TECHNICAL ANALYSIS: The stock price was traded over $6 until last July. In
fact, the stock price started to decline since last February when it reached
its 52-week high over $12.00. Since then, the price has steadily declined
to the current level. Technical analysis suggests that there is a strong
technical support in the range of $2 and the stock is extremely oversold.
Bollinger Bands strongly tighten to the average, indicating that sharp moves
of the price will occur. On Balance Volume suggested strong accumulation is
going. Relative strength has been picked up since January 1,1999, a clear
sign of bullish of a stock price for months to come. MACD, a price momentum
indicator, has penetrated both 10 days and 30-days moving averaging
converge, suggesting short-term uprising of the stock price.
SUMMARY: The stock price has declined since last February when the company
lost the favor on Wall Street due to its heavy debts caused by its
aggressive acquisition in the past several years. Last year, the company
slowed down its acquisition and focused on reduction of its debts. Thus,
the company had to use its ongoing earnings reducing its debt. As a result,
its effectively diluted the company's annual earnings. This was a major
reason that the company would achieve $0.43 earnings per share, only 39% of
its 97 earnings per share. We believe this factor, in combination with
other factors such as tax-loss selling and poor showing in small- and
micro-cap stock market last year, had contributed the decline of the stock
price in th past year. When we look into this stock again right now, we
believe is extremely undervalued compared to its peers in the industry or
the market overall in terms of its stock valuation, financial conditions,
revenue and earning growth rates, management efficiency as so on as
presented above.
In addition, we want to emphasize several other things. First, Insider
Trend Index covered by CDA Investnet is very positive. Last December,
several management members bought over 1 million shares at $5-$6 from some
insiders who paid $8-$10 one year ago). This purchasing was not in the open
market and management wanted to reduce some loss for its insiders who funded
ECGOF when they needed cash to acquire other companies. Right now,
management is holding more than 10.555 million shares, about 50% of its
total outstanding shares. It is a major sign for a turnaround situation.
Second, On January 12, 1999, leading analysts on Wall Street examined the
Environmental Services and Water Industry and The Wall Street Transcript
published this report, a vital review for investors and companies. An
in-depth roundtable forum featuring four distinguished analysts: Mari Bari
of Deutsche Bank Securities, William Genco of Merrill Lynch, Michael
Hoffman of Credit Suisse First Boston, and Marc Sulam of Donaldson, Lufkin &
Jenrette. The panel discussed recycling, future consolidation, cyclicality
of water treatment companies, interstate commerce of garbage, and the U.S.
Filter-Culligan Merger. In this report, ECGOF was favorably mentioned by
several analysts. It is not surprising that some huge accumulation has been
occurred in the past week. The money flow turned up dramatically last week
to levels not seen in more than 9 months. The point and figure chart has
reversed up into a column of X's and momentum has turned positive. Third,
the relative strength of the stock price has been strong since January 1,
1999. We believe this is a clear sign of bottom out for the stock. Fourth,
the company has been profitable since 1993 and we believe 1999 and 2000 will
be record years for the company's earnings. We anticipate the company will
earn $1.19 per share for 1999. Fifth, we don't see any major resistance
when the stock price is rising as most investors and even insiders paid the
shares over $5 per share. Sixth, the company may have a solid earning
report for its fourth quarter of 1998. They may beat projected earnings of
$0.15 per share by earning $0.22 as we expect, and Wall Street definitely
will get notice. Seventh, we heard that the Federal Goverment just awarded
the company a major contract for construction of the pipeline serving the
Sable Island field. We believe this contract should be worth tens of
millions of dollars for a couple of years. Our conservative target price is
$7-$8 and our aggressive target price is $10-$12 for next 6-24 months.
CONTACT:
American Eco Corporation
Cindy Jackson,
Tel: 888/774-3246
Home Web Page: http:// www.americaneco.com
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