Hudson Technologies, Inc., (HDSN) is a refrigerant services company. Its core business are: Provide refrigerant for use in cooling sys...

Weekly Superstock Scan 1 Aug 2016 - 5 Aug 2016: Hudson Technologies, Inc (HDSN)

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Hudson Technologies, Inc., (HDSN) is a refrigerant services company. Its core business are:
  • Provide refrigerant for use in cooling systems (e.g. air conditioning)
  • Recycle (reclaim) refrigerant. Hudson is largest reclaimer in U.S.
  • Provide system service and energy optimization
Of the above, 90% of the total revenue are derived from refrigerants and reclamation services.








Technical



On July 18, price of HDSN spiked up 33% on the news that HDSN was awarded a significant Depatment of Defense (DoD) contract with a potential maximum value of $400m in sales over a 10-year period. The weekly volume for the week was close to 15 times its average weekly volume.

For years HDSN has tried to break new high but failed to close above $4.60. With this break, it finally hit a multi-year high and closed above $5.

Fundamentals



HDSN's business is seasonal in nature with peak sales of refrigerants occurring in the first half of each year. Therefore, I will use the 12 month EPS to analyse the the earnings. Including the most recent quarter, HDSN has recorded 7 consecutive quarters of non-negative growth.

DoD Contract a Game Changer

Dan Stringer has posted an excellent article on Seeking Alpha so I would recommend you to read it if you would like to know more about the impact of the DoD Contract.

Putting things in persepective, HDSN has a TTM of $85.8m. Assuming that the $400m in sales is spread evenly across 10 years, HDSN will be seeing a 50% increase in revenue. 

To complete this large deal, HDSN may develop better processes and invest in more infrastructure. This puts HDSN in a better position to clinch bigger deals and gain market share. 

Heightened Environmental Concern Providing Opportunities

Effective January 1, 1996, the Clean Air Act prohibited the production of virgin CFC refrigerants and limited the production of virgin HCFC refrigerants, which production was further limited in January 2004. Under the Act the phase-down of future production of certain virgin HCFC refrigerants commenced in 2010 and is scheduled to be fully phased out by the year 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by the year 2030.


This is good news for HDSN as reclamation market is expected to grow as a result. In addition, due to increased demand for reclaimed refrigerants, the price of the refrigerants are expected to increase. 

Matrices
o Trailing 12 Months P/E ratio of 28.9. This does not take into account the newly awarded DoD contract
o Float of 24.8 million shares. Approximately 77 times average volume.

Risk Factors/ Things I do not Like

  • Earnings Release - The second quarter earnings will be reported in a few days time, on 2nd August. It is unsure how much weight investors are putting on the second quarter results after the recent contract win.
  • Reliance on Suppliers - If HDSN is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms, the company's financial result will be affected.




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