Heckmann Corporation (NYSE: HEK) is soaring as it is acquiring privately held Power Fuels for $125 million in cash and 95 million shares of stock. Expect Heckmann to fall once the speculators cash in and take profits. Heckmann is in the waste management sector, along with others such as Republic Services (NYSE: RSG) and EnergySolutions (NYSE: ES).
This is a $381 million dollar for Heckmann. It is being cheered by investors and analysts as the price is cheap, about 3.4 times EBITDA, and it takes Heckmann's operations into the Bakken Share. It is expected that Heckmann will get about three-quarters of its business from this area.
Other reasons to expect the share price of Heckmann to return back to earth is that the company has been downgraded three times since April. In August, Global Hunter Securities downgraded Heckmann from a Buy to Neutral. Also in August, Boenning and Scattergood downgraded Heckmann from Outperform to Neutral.
Mergers and acquisitions have a tendency not to deliver the promised results. Heckmann now has a price-to-earnings growth (PEG) ratio of 3.37. A PEG of 1 is considered good: the lower the better. Legendary investor Peter Lynch considers this to be one of the most important indicators for a company.
The price-to-earnings ratio for Heckmann Corporatin is now 92.75. For Republic Services, the price-to-earnings ratio is 15.13.
Profits should be made from the stock falling after the glow of the deal fades to what reality brings.