Wednesday, April 29, 2009

Metalico (MEA) is Due for a Rebound

Metalico (MEA) is a scrap steel provider in New Jersey and Upstate New York. Last June, this was almost a $20 stock, with a large institutional following. It hit $1.15 as a low in November, as investors disgorged commodity stocks in general -- with scrap steel seen as being even more downstream than the steel stocks themselves, making them even less desirable.

This morning, Metalico announced a debt-for-equity swap with some of their creditors to reduce the company's debtload by $10mm, taking it down to approximately $175mm. Their cash balance is around $63MM. This should provide a modest boost to the stock this morning as we've seen with other leveraged companies in this environment.

Another reason to look at the stock is that is has lagged the rebound of other scrap steel providers such as Schnitzer Steel (SCHN) and Steel Dynamics (STLD) over the last 6 months by 110% and 40% respectively. It's another baby-with-the-bathwater stock that is due to rebound (although it sports a higher Enterprise Value to EBITDA ratio than the two other scrap steel companies).

Please note that due to factors including low market capitalization and/or insufficient public float, we consider MEA to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Position: Long MEA.

Originally Published in on 4/24/2009 8:59 AM EDT

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