Let's begin by searching for a company that sports a share price that has risen by more than 800% during the past three calendar years -- compared with 18% for the New York Stock Exchange. It must also be the recipient of across-the-board strong buy ratings from all of the analysts who follow it. There is, in fact, such a company: Houston-based Flotek Industries (NYSE: FTK ) , which reported its results for the final quarter of 2012 on Thursday.
For the quarter, Flotek posted per-share earnings of $0.44, significantly higher than both the $0.02 for the comparable quarter a year earlier and the $0.17 consensus expectation. Revenues for the final quarter of 2012 were $76.7 million, up 2.4% year over year from $74.9 million.
Since a look at the company's full year appears to be warranted, especially amid vacillations in the North American drilling market, it's worth noting that after items for the 2012 year, Flotek earned $37.9 million, or $0.71 per share, compared with $20.2 million, or $0.42 per share in 2011. Full-year gross margins were 42.1%, versus 40.9% for 2011.
Lifting the hood on Flotek
Flotek operates through three segments: its chemical and logistics division, its drilling products division, and its artificial lift unit. As Flotek CFO H. Richard Walton noted during the company's post-release call, the chemicals and logistics unit and the drilling products division drove most of the growth in the quarter. He further said, "In those segments, revenue growth was a result of improved pricing and improved marketing efforts, which resulted in increased market share."
The chemicals unit benefited from a sizable reduction in raw-materials costs and the effects of capital projects at the Marlow, Okla., chemical production facility. At the same time, given the importance of research in the chemicals unit, Flotek increased the scope of its research facility in The Woodlands, Texas, by 30% during the most recent year.
In the drilling products segment, rig count reductions in North America during the second half of 2012 were offset by a higher market share and increased work from existing customers. At the same time, continued increases in revenues from the company's Teledrift measurement-while-drilling products and its Cavo motors operation offset the reduced drilling activity.
The artificial lift operation progressed during the year from a gas-centric emphasis toward an increased attention to liquids. Further, the Galleon manufacturing group, which produces drilling tools for base and precious metals mining, turned in a record year, including an expansion of its backlog for core mining tools.
International spread
If you're an oilfield services aficionado, you recognize that, at least for now, international operations are of supreme significance for the sector. As such, its important to note that, also on Thursday, Flotek announced an agreement with Gulf Energy, an oil and gas concern based in Oman, involving the construction of an advanced oilfield chemistry production facility and the creation of a state-of-the-art research organization. These facilities will address expanding needs in both the Middle East and North Africa.
Under the terms of the agreement, Flotek will own 60% stakes in a pair of Omani-registered limited liability companies. But Oman is hardly the company's only expanding international venue. As Steven Reeves, the company's executive vice president of operations, noted on the company's call: "We are making meaningful commercial progress in Latin America, Europe, the Middle East, and North Africa. We expect to discuss additional opportunities in those regions throughout the year."
Far better balance
Beyond purely operating considerations, Flotek has materially strengthened its balance sheet. Before the close of 2012, it repurchased approximately $50 million in outstanding convertible notes. That step was followed by the repurchase in mid-February of the remaining $5.2 million of its outstanding convertible notes.
Flotek operates in a somewhat complex world wherein oilfield services giant Halliburton (NYSE: HAL ) , for instance, constitutes both a customer and a competitor of the smaller company. More direct competitors, especially vis-a-vis the chemicals sector, include Baton Rouge-based Albermarle (NYSE: ALB ) and The Woodlands-headquartered Newpark Resources (NYSE: NR ) . Given the overlap among Flotek and its closest competitors, let's compare a few of their respective metrics: �
Metrics | Albermarle | Flotek | Newpark |
|---|---|---|---|
Market Capitalization | $5.7 billion | $730.3 million | $615.4 million |
PEG Ratio | 1.52 | 0.98 | 1.12 |
Operating Margin | 18.57% | 18.42% | 10.20% |
Return on Equity | 18.29% | 42.73% | 11.87% |
Total Debt/Equity | 36.20 | 20.63 | 50.51 |
Sources: Yahoo! Finance and TMF calculations.
Obviously, Albermarle is substantially larger than the other two companies. But Flotek is the only one of the three companies that has managed to dip beneath the magic -- and desirable -- 1.0 PEG ratio. Albermarle and Flotek are virtually neck-and-neck in the operating margin race. After that, Flotek essentially has run off and hidden from the other two companies in both the return on equity and debt ratio competitions.
The Foolish bottom line
Given the steady improvement in Flotek's share price, its high standing among the analysts, its expanding international presence, and its strong metrics, I'm strongly inclined to recommend that energy-investing Fools keep close on this rapidly expanding member of the oilfield services set.
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