Investors who don't live near major waterways probably never give a thought to the inland barge industry, but Kirby (NYSE:KEX) has built quite a business for itself in this market. Better yet, this company has taken the cash from this lucrative transportation business and reinvested it in growth opportunities, like diesel engine servicing. Although the stock has done exceptionally well this year, investors may want to keep an eye on this name, in the hopes of pouncing on a pullback.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Floating On
Kirby is far and away the largest player in the U.S. barge market, holding more than one-quarter share of the inland market and more than 20% of the harbor/coastal market. In fact, not only is Kirby the only publicly-traded pure play on barge transport, it's difficult to find any publicly-traded companies that are involved in this market at all; Enterprise Products Partners (NYSE:EPD) and Overseas Shipholding (NYSE:OSG) both have very small businesses in these markets.

So who cares about barges, anyway? Well, they are still a very viable means of ferrying products, like coal and petrochemicals. In the case of Kirby, the company uses its fleet of over 800 tank barges to move petrochemicals along major water routes, from producers like The Dow Chemical (NYSE:DOW), to users like paper, fiber and plastics companies. What's more, barge transport is 40% more fuel efficient than rail and 272% more efficient than trucks, so there are very valid economic reasons to use river transport when possible.

A New Growth Engine
Although Kirby's diesel engine services business has not traditionally garnered much attention, a sizable acquisition is likely to change this. In years past, Kirby focused on manufacturing and overhauling medium and high-speed engines for customers in markets like marine transport, energy, power gen and railroads. As a service provider they are not really in competition with Caterpillar (NYSE:CAT) or Cummins (NYSE:CMI).

Now, though, the company has a big opportunity in hydraulic fracturing equipment. Companies like Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) are adding fracturing capacity as fast as they can, as this is a key aspect to the economic viability of shale gas formations like Eagle Ford, Barnett and Marcellus. Simply put, without fracturing companies like Chesapeake Energy (NYSE:CHK) they can't garner enough oil and gas from these areas, to be viable.

Luckily for Kirby, fracturing is very hard on equipment and necessitates frequent maintenance and overhauls. Not only is there a service angle here for Kirby, but the company is now more involved in the manufacture of the equipment itself. Assuming further exploitation of natural gas in the U.S., this could be a real growth opportunity for Kirby in the years to come. (To know more about acquisitions, read Analyzing An Acquisition Announcement.)

Some Risks, but They Look Manageable
Given that two-thirds of the company's business comes from marine transport, the state of those waterways is a real concern. Like much of the country's infrastructure, waterway infrastructure, like locks, are old and getting older and there is a risk that underspending here could eventually impair the navigability of the waterways and Kirby's ability to offer its services.

Debt and the company's acquisitiveness could also concern some investors. Kirby has done a good job of paying down debt from its own cash flows in the past, but debt did spike on the recent acquisitions of United and K-Sea. Acquisitions have long been a key part of boosting Kirby's growth and while integration risk seems modest, given the company's experience, some investors may be troubled by the shrinking pool of quality acquisition candidates going forward.

The Bottom Line
With the stock already up 45% this year, it's no great surprise that the stock is no longer a real bargain. Even allowing for the growth potential of the diesel services business, it is hard to argue that the Street is not already fully up to speed on the potential here. Should the stock sell off, this would be a great name to consider adding for both the stability of its marine business and the growth potential of the fracturing operations. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... 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. 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 >>
  4. 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 >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center