CARBO Ceramics Inc. (NYSE:CRR) may not be as much of a high-profile name as the likes of Chesapeake Energy Corporation (NYSE:CHK) and Ultra Petroleum Corp. (NYSE:UPL). Yet, CARBO Ceramics has something many of those gas and oil explorers don't - consistency. Indeed, CRR may be some of the best evidence available that in the fracking game, you'd rather be the middleman - supplying companies like CHK and UPL - than on the front lines of exploration and drilling like Chesapeake and Ultra Petroleum. There's just too much risk and not enough reward on the front line.
CARBO Ceramics is the manufacturer of a ceramic proppant. A proppant is a granular material that's injected into the fractures created by the natural gas fracking activity. It's a critical part of the process too, as the natural gas won't surface at all of it has to push through earth, but it would all escape if the fractures were left open. These fractures would never remain open on their own. They would invariably collapse, in fact, if left open. But, a proppant solves both problems by filling in a fracture with a porous, grainy material that allows natural gas to pass through it while still holding up the walls of a fracture.
CARBO Ceramics makes a superior proppant, however. Its ceramic proppant grains are uniformly sized, maximizing its porous qualities without sacrificing the safety or integrity of the fracture itself.
The underlying technology, however, is academic compared to the company's results, and that's where CARBO Ceramics really starts to shine.
From a top line of $387 million in 2008 (when fracking just started to become very popular) to revenue of $625 million in 2011 to $645 million for the past four quarters, CRR has proven the demand is in place... and growing. Yet, CARBO has also done something few other oil and gas names (of any ilk) have been able to do of late - turn a consistent profit. CARBO Ceramics Inc. has grown its annual income from $52.8 million in 2009 to $129 million for 2011. Over the past twelve months, it's created a bottom line of $105.9 million, and the pros say income is going to grow another 30% in 2014 after a lull this year.
It's not a cheap stock, mind you. CRR is trading at 19.8 times its trailing income and 16.1 times its projected (2014) bottom line. But, you have to pay a premium for quality growth; CARBO looks like it's worth the price of entry.