It's time for Metalico (MEA) to Ride the Lighting

Cranford, N.J.-based Metalico, Inc. (AMEX:MEA) has grown into a $250 million business by scouring for industrial and scrap metal, processing it, and selling the recycled metals to customers - including integrated steel mills, foundries, metal brokers, and aluminum recyclers. They are the largest lead fabricator in the United States, with lead manufacturing and recycling facilities located in Alabama, Nevada and Illinois.

Metalico's principal business segments are ferrous and non-ferrous scrap metal recycling, and fabrication of lead-based products. It has eight recycling facilities through New York, Pennsylvania, and Ohio, and five lead fabrication plants in four other states.

Who thought recycling would ever pay off? Metalico (not to be confused with rock band Metallica) obviously has it all figured out, and I’ll tell you why:

Acquisitions:

July 10, 2007 - Metalico acquires Totalcat Group, Inc. of Newark, New Jersey
Totalcat Inc. is a recycler of molybdenum, tantalum and tungsten scrap.

July 2, 2007 - Metalico acquires operations of Annaco, Inc. of Akron, Ohio
Annaco is one of the largest motor block processors in the country and is a major regional provider of ferrous and non-ferrous scrap. Metalico Akron is retaining all of Annaco's employees.

May 31, 2007  - Metalico acquires Tranzact Corporation
Tranzact Corporation is a recycler of molybdenum, tantalum and tungsten scrap.

Metalico has been spending a ton of money, why do the acquisitions matter, shouldn't they hurt the bottom line?

Metalico isn't just spending money like a rock star, they are investing in their business segement and positioning themselves to be the recycling Kings of the world. First off, Tranzact Corp. was a great buy, their company generated sales of $25 million in each of the last 2 years. Although Annaco Inc. needs some serious help with their corporate website, after some research on Google it appears that Annaco and TotalCat brought in a combined $92 million in the last completed fiscal year, while the purchase price for the acquisitions was only $63 million.

My fellow Americans, Metalico is about to Ride the Lighting and increase their annual revenue 55% from $212 million to $329 million. And that’s just the beginning; add on their growth rate of 10% and they are going to be sitting pretty with annual revenue of $362 million. Analysts are expecting earnings of just .62 for the entire year of 2008 – we think it’s just a matter of time before the upgrades start coming in.

With the Metals sector catching on fire lately, even Forest Gump, or Lars Ulrich for that matter, could figure out that Metalico is well positioned for a solid return on investment.

JANA Partners founded by Barry Rosenstein disclosed a 6.8% stake (2,142,857 shares) in the Metalico, Inc. (AMEX:MEA) last Friday (7/13) in a 13G filing. The big buyers are going to start to make a positron in MEA, it's just a matter of time.

Article written by: Eric Cheshier
Article posted on: July 18th 2007

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Disclaimer: The Author does not own any shares or positions in any of the securities mentioned in this publication.