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Bull of the Day: DXP Enterprises (DXPE)

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The oil and gas segment has seen massive volatility in oil prices over the past year, but recent news has stabilized the market as of late.  The impeding OPEC and producers meeting set for later in September to discuss a production cap has caused prices to trade within a nice range.  This stabilization will enable producers to start new repairs and replace old operating products as price uncertainty fades.  One such industrial maintenance company is well positioned to take advantage of this opportunity, DXP Enterprises (DXPE - Free Report) , who is the Zacks Bull of the Day. 

This Zacks Rank #1 (Strong Buy) company is a leading supplier of maintenance, repair and operating products, equipment and services to industrial customers. The company offers its customers a single source of supply on an efficient and competitive basis by being a first-tier distributor which purchases its products directly from the manufacturer. The company also provides value-added services such as system design, fabrication, installation, repair and maintenance for its customers.

Earnings & Revenue Beats

In their most recent earnings report the company saw quarter over quarter gains in Sales (+1.0%), Gross Profit (+4.1%), SG&A costs (down -18.8%), EBITDA (+185%), and Earnings per diluted share rose from -$0.35 in Q1 16 to $0.34 in Q2 16. 

Management’s Take

According to David Little, Chairman and CEO, “We are pleased with the second quarter performance. Total DXP revenue of $256.2 million for the second quarter was up 1.0 percent sequentially. We feel strongly that our sales team is taking market share as we continue to battle volatility in our industrial markets. Our goal is to take market share, manage working capital, capital expenditures and cash flow in order to maximize our return on invested capital for our shareholders. Despite the challenging environment, we remain confident in our future and the opportunities ahead for DXP. With the work we have done and continue to do in terms of managing costs, aligning the business and strategically positioning our product segments, DXP is poised for the earnings leverage and sales growth that we are accustomed to delivering once the market turns.”

Comparative Chart

As you can see from the chart below, DXPE had been basically trading in line with the S&P 500 until their strong earnings performance.  Once earnings were reported, the company significantly outpaced the index.

Increasing Estimates

Management’s commitment to cost containment and the stabilization of the oil and gas markets has caused analysts to increase estimates for Q3 16, Q4 16, FY 16, and FY 17 over the past 30 days.   Q3 16 improved from $0.01 to $0.16, Q4 16 rose from $0.05 to 0.13, FY 16 jumped up from -$0.38 to $0.30, and FY 17 leaped up from $0.28 to $0.44.

Bottom Line

The impending OPEC and producers meeting is crucial to maintenance, and repair companies like DXPE.  If the producers can better gauge their revenues more accurately going forward, they will be able to schedule and resume maintenance, and repair projects. 

Given recent statements by Russia, OPEC, and Iran, the likelihood of a production cap has continued to increase over the past few weeks.  Evidence of this can be seen in the recent stabilization of the commodity’s price. 

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