Matrix Service Co.

Matrix Service Co. (MTRX - Snapshot Report) has had a very nice move in its stock price over the past two months as analysts began to revise their full-year estimates for the company. On Oct 4, the company beat its earnings estimates and logged a new 52-week high. Prices now look positioned to head higher as they have consolidated and created a nice base above this area.

Full Analysis

Matrix Service Co. provides specialized on-site maintenance and construction services for petroleum refining and storage facilities and water storage tanks and systems for the municipal and private industry sector. Owners of these facilities use the company's services in an effort to improve operating efficiencies and to comply with stringent environmental and safety regulations. From the company's founding, it has specialized in serving the refining industry. They have successfully executed both large and small projects for refineries and terminals throughout the United States.

The big issue in the world of crude oil and gasoline production exists at the refinery level. As is stands, domestic crude refineries simply do not have the capacity to keep pace with the demand for gasoline. Although the supply of crude is adequate, it is the inability of the refinery to process these barrels of crude into consumer grade gasoline that is having the most significant effect on prices at the pump.

This has placed a very strong emphasis on the issue of either creating new refineries or upgrading the existing infrastructure. In the 1980s, refiners were producing at 77.6% of their capacity. In the 90s, that figure rose to 91.4%. And today they are operating at an even higher capacity, leaving very little margin to increase production. In 2006, motorists used 143 billion gallons of gasoline, of which 136 billion was produced by U.S. refineries, and the rest imported.

In recent years American refiners have been hampered by outages and have had difficulty keeping up with gasoline demand. Crude imports were down also because of greater fuel demand in Europe and other regions. Despite stable, even sometimes declining oil prices, gasoline prices have escalated to record levels.

All of these circumstances have led to an increase in demand for companies like Matrix that can assist refiners in either developing new technologies or improving outdated processes.

On Oct 4, the company reported that revenues for its latest quarter increased 27.1% to $161.3 million, versus $126.9 million a year earlier. Net income was $6.3 million, compared to $3.0 million in the first quarter a year ago. Earnings per share came in at 23 cents, one penny higher than the expected 22 cents. This represents the fourth consecutive quarter that Matrix has beaten its estimates.

There has been a fair amount of volatility in this stock over the past year, but within the last two months it appears to have stabilized and locked into a very nice trend. This also happens to be the same time that analysts began raising full-year estimates for the company, moving from a forecast of $1.15 to $1.21 per share.

On Sep 10 prices came very close to matching the 12-month low of $16, but have since rebounded very nicely from this area and have actually eclipsed the 12-month high at $29.50.

On the ride up prices were able to find support from the 21-day moving average and the shorter-term trend line that begins on the low of Oct 1 at $20.50. Both of these trends are still in play and should continue to apply pressure to the upside as prices advance.

Within the past two weeks, prices have consolidated right at the top of the 12-month high and traded in a fairly tight range. It looks like this area around $29.50 should continue to be pressured as prices look to break out of the current range and establish new territory above the old high.