CARBO Ceramics, Inc.

CARBO Ceramics, Inc. (CRR - Snapshot Report) saw record proppant sales in the third quarter as oil drilling remained strong in the U.S. CARBO has surprised on estimates 4 consecutive quarters. CRR has a forward P/E of 12.

Company Description

CARBO Ceramics manufactures ceramic proppant and ceramic media. Proppants, which are spherical pellets, are used primarily in the hydraulic fracturing process of natural gas and oil wells and increase their productivity. Ceramic media is applied in foundry metal casting and industrial mineral grinding industries. It is used as an alternative to silica and specialty sands.

Founded in 1978, CRR has 4 manufacturing plants in the U.S. and China and stocking locations around the world. It has a 35% share of the worldwide ceramic proppant market.

Proppant Sales Hit New Quarterly Record in the Third Quarter

On Oct 30, CARBO Ceramics reported third quarter earnings that beat Wall Street estimates by 3.33%, or 2 cents per share, on the back of record quarterly revenue from proppant sales.

Proppant sales rose 35% compared to a year ago. Pricing was also up 6%. Overall sales jumped 38% on the quarter to $102.6 million.

Sales were strong in North America, as volume climbed 47% compared to a year ago despite an increase of only 6% in the U.S. natural gas rig count and a 24% gain in the Canadian rig count.

Net income was $15.3 million, or 62 cents per share. Analysts expected 60 cents.

The company is bullish going into 2009 as demand for its proppant continues to be strong despite the slowing economy. The company believes any downturn in drilling will be short in duration due to steep decline curves in reservoirs that are currently producing the bulk of U.S. natural gas.

"Looking forward, the lack of credit availability and the slowing global economy raise some concerns about the level of drilling activity in 2009. However, we are entering this period with a very strong market where demand for our proppant in North America presently exceeds our domestic production capacity," said President and CEO Gary Kolstad.

CARBO is also well-positioned to ride out this credit crisis as the company has no long-term debt.

2008 Consensus Estimates Rise

Covering analysts are optimistic about the remainder of 2008. Full-year estimates are up 13 cents to $2.42 in the last 2 months.

Estimates are mixed for 2009, as 1 analyst out of 4 has lowered in the past month. Estimates are down 15 cents to $2.54 in the last 60 days. The company is scheduled to report fourth quarter and 2008 full-year earnings on Jan 22.

Value Fundamentals

CARBO Ceramics is a Zacks #1 Rank (strong buy) stock. The company has beat estimates 4 quarters in a row by an average of 6.13%.

CRR is trading at 12x forward earnings. Its price-to-book is 2.18. CARBO has a stellar 5-year average return on equity (ROE) of 16.48%. The company also pays a dividend with a current yield of 1.90%.