I love most aquatic sports. From fishing and kayaking to
powerboating and waterskiing, if it's warm out, I want to be near
or on the water.
I grew up near several major rivers where I often fished and
boated as a youngster. Although these rivers were hundreds of
yards wide, they were usually shallow. They were constantly
becoming silted in from runoff, debris and assorted otherfactors
. The same thing occurred in local reservoirs, where the water
got continuously shallower as mud and silt piled up against the
If you have ever stepped into this muddy, silt-filled mess
when boating or fishing, then you know it's pretty disgusting.
Not only is the silting of rivers and reservoirs a realissue for
recreational users of waterways, but it can impede crucial
transportation and navigation routes.
It's a problem begging for a solution -- and in a twist of
fate, I discovered a company that provides one.
Several weeks ago, when researching the
Gold TrustETF (
, I inadvertently added an extra "D" to the GLDticker symbol .
What I serendipitously fell into reminded me of the waterway
Great Lakes Dredge & Dock (
, provides a solution to the silting problem, without even
mentioning its other diversified problem-solving businesses. I
decided to take a closer look at this company as a
Great Lakes Dredge & Dock is a 122-year-old U.S.-based
dredging company. Dredging is the process used to remove the silt
and muck from the bottom of waterways to maintain a navigable
depth -- think of backhoes that can digunderwater -- and is the
only practical solution to the problem of silting. The company
owns the largest fleet of dredging vessels in the industry, with
more than 200 boats.
Although based in the United States, Great Lakes has a strong
international presence. The company is also involved in other
businesses beyond dredging. It provides demolition services in
the Northeast U.S., holds a 50% share of a New Jersey-based
marine sand-mining company and even owns a 50% share in an
environmental services company focusing on remediating polluted
Not only does Great Lakes save inland waterways, but the
company is also involved in beach replenishment and protection.
This often involves pumping in sand from offshore locations to
rebuild beaches lost to storms and steady erosion.
The company recently won a contract of more than $100 million
from the U.S. Army Corps of Engineers to deepen the Miami Harbor.
Dredging is expected to start in the fourth quarter. The
projectwill begin by digging out the offshore entrance to the
port with additional work to potentially be awarded in
While the company's dredging division is posting solid results
-- not to mention winning more than 50% of the U.S.market -- the
demolition division is dragging on overall performance. Digging
into the details, Great Lakes'revenue increased more than 20% in
the first quarter, to nearly $190 million. In addition,gross
profit margin rose slightly to 13.7% from 12.9% ayear ago.
Adjustedearnings before interest,taxes ,depreciation
andamortization (EBITDA ) grew 23% to just over $18 million, from
just under $15 million in 2012.
However, Great Lakes followed an annual loss last year of $2.7
million, down from aprofit of $16.5 million in 2011, with a
year-over-year decrease innet income in its first quarter, down
from just over $1 million to $433,000.
I expect a stronger remainder of 2013 due to a $361 million
dredgingbacklog , the Miami Harbor project, a $30 million New
Jersey shore protection project, as well as 15 to 20 potential
coastal projects in the wake of Hurricane Sandy.
But the most exciting potential growthcatalyst is the $340
million in Gulf restoration projects funded by the first
Deepwater Horizon spill settlement. In addition, the company is
focusing on improving execution andinternal controls to help
improve its demolition division'sbottom line .
Technically speaking, GLDD has fallen back to the 50- and
200-day simple moving averages after hittingupside resistance at
$8.75.Consolidation support also exists in the $8
Risks to Consider:
The company has recently been downgraded by BB&TCapital
from a "buy" to a "hold." Although I don'tput much faith in
upgrades or downgrades, this company is taking heat from
investors due to an annual loss. However, Great Lakes could be in
line for a portion of the BP oil spill settlement work, which
would help its bottom line tremendously. Always use stops and
position size properly wheninvesting .
Action to Take -->
Despite the annual loss, I think this company is on an upswing
due to the pending workload and its willingness to make positive
changes in its money-losing demolition division. The price is
sitting on support right now, setting up a solid technical buy
opportunity. Buying now with stops at $7.75 and a six-month
target price of $10 makes good technical sense.
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