Carbo Ceramics (NYSE:CRR) continues to generate prodigious growth in sales of proppant as the company benefits from the manic development of onshore unconventional resource plays in the U.S.
TUTORIAL: Commodity Investing 101

Summary
Carbo Ceramics manufactures and sells proppant, a product used during the hydraulic fracturing of wells. The proppant is placed into the well along with the fluid and remains behind to hold open the fractures created in the rock. Most of the company's sales are of ceramic proppant, a more expensive product that the company markets as superior to other alternatives.

Q2 2011 Results
Carbo Ceramics reported a net income of $29.9 million, or $1.29 per diluted share in the second quarter of 2011. Revenues came in at $149.7 million for the quarter, a 34% increase over the second quarter of 2010. The company sold 387 million pounds of proppant in the quarter, a 23% year-over-year increase. This growth is expected to continue going forward as the consensus earnings estimates for the company is at $7.08 per share in 2012, up from $5.39 in 2011.

Although many might be envious of the company's growth, the market was expecting more and the stock sold off sharply after the earnings release.

Dividend
Carbo Ceramics recently raised its quarterly dividend to 24-cents per share, a 20% increase and the eleventh consecutive year that the company has increased its dividend. The current yield on the stock is only a paltry 0.60%, but most investors aren't buying it for the income stream.

Future Growth
Although proppant sales have been growing at double-digit rates since the rig count bottomed several years ago, oil service companies are developing a more efficient fracturing process that would use less proppant than current techniques.

Schlumberger (NYSE:SLB) is promoting the company's HiWAY hydraulic fracturing technique which creates a more conducive method for hydrocarbons to flow. Petrohawk Energy (NYSE:HK) uses this technology in the Black Hawk and Hawkville fields in Texas. The company said that using this fracturing technology required 40% less sand proppant than the previous process. Petrohawk Energy also found that wells fractured with the HiWAY technology are more productive than wells that undergo conventional fracturing techniques.

Substitution Effect
Some operators are substituting lower priced sand proppant in place of ceramic proppant if a well can be completed efficiently without the higher-end product. Pioneer Natural Resources (NYSE:PXD) is using sand proppant in place of ceramic proppant in the Northwest portion of its leasehold in Texas, where the Eagle Ford Shale is at a shallower depth. The company said that between 20 and 25% of the wells can be drilled efficiently with sand proppant, and each well drilled this way would reduce proppant cost by 60%, or between $600,000 and $800,000 per well.

Carbo Ceramics does make resin-coated sand proppant as well, but non ceramic proppant was only 6% of the company's volume in the quarter ending June 30, 2011. The company is adding resin-coated sand capacity and will have the ability to produce 350 million pounds annually.

The Bottom Line
Carbo Ceramics is arguably the fastest growing oil service company available to investors and remains an excellent way to play the growth in onshore drilling in the U.S. However, investors might also want to consider that the shareholder base has high expectations on future growth and any disappointment here might create above-average stock price volatility. (For additional reading, check out Peak Oil: Problems And Possibilities.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  2. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Savings

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  5. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  6. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  7. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  8. Investing Basics

    Why do Debt to Equity Ratios Vary From Industry to Industry?

    Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries.
  9. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!