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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


September 7th 2012 Heckmann Corporation
NYSE Symbol: HEK
Industry: Oil & Gas management
Price as of 9/7: $4.07

As summer came to an end, many investors believed the rally would also come to an end. One factor adding to the bearish outlook for this fall is the fact that September has been the worst performing month for numerous years. That being said, the first week of September was one to remember, with all the indices reaching new highs. The Dow reached levels not seen since before the housing market bubble burst, the S&P broke through the critical 1425 mark, and the Nasdaq rallied to a five year high, and levels that haven't been touched since 2000. With such a phenomenal rally in the market, many companies are seeing their shares gain momentum and value. The added value has left companies feeling confident in using their cash flow to grow the company. One company that has done this is Heckmann Corporation, which is our pick for stock of the week. In a recent merger, Heckmann used their cash to purchase another company causing shares to gain 53% since August 31st. On the charts, Heckmann is looking as though it has some upside potential left. The company showed a strong buy signal on September 4th and came off its 52-week low in full force. Thanks to the recently announced merger with Pro Fuel, investors seem to be back on board enthused about Heckmann's prospects. Heckmann is a low priced stock with no dividend, so conservative investors should shy away, but anyone looking for a speculative growth stock, Heckmann might be one to consider.

Heckmann Corporation operates as a services-based company focused on total water and wastewater solutions for shale or unconventional oil and gas exploration and production. The company offers water delivery and disposal, trucking, fluids handling, treatment, temporary and permanent pipeline facilities, and water infrastructure services. The company has posted revenue of $245.17 million with a gross profit of $33.33 million. The revenue and profit has an astonishing year over year quarterly earnings growth of 5,770.50%. The company trades at 59.64 times earnings, 2.54 times sales, and 1.36 times book value. These positives outweigh the negatives, which include negative $0.13 earnings per share, a debt load of $270.23 million, and negative profit and operating margins of -6.82% and -1.92%, respectively. Analysts seem to be bullish on the stock and see the negative margins turning around. Analyst estimates show positive outlooks on the growth potential of the company. This year analysts expect the company to show -16.70% growth, however next year that number jumps to a positive 40.00%. Going even farther out, analysts' see 5 year growth of 25.00%; significantly beating the industry average of 10.25%. Adding to this growth potential is the aforementioned merger with Heckmann and Power Fuels (owned by Badlands Energy LLC.)

Power Fuels is an environmental services provider dedicated to the movement, treatment and disposal of water generated by energy companies involved in the discovery and production of oil, natural gas liquids and natural gas. Under the terms of the agreement, Heckmann plans to pay $125M in cash and 95M shares of the company's common stock. The shares will be subject to a two-year lockup agreement and a two-year standstill agreement. Heckmann will also assume or refinance $150M in Power Fuel's debt. This deal will significantly add to Heckmann's earnings beginning in 2013, as the deal is expected to close in the fourth quarter of this year. This deal will allow Heckmann to become a nationwide provider of their services which will unlock huge growth potential in the company. Investors seem to agree bidding up the stock. Once again, Heckmann is not a conservative stock, but may be a stock to consider for momentum buyers.