This Company’s No Pipe Dream!
by Robert Morris, Editor
Let me give you fair warning. The following statistic could make you
sick to your stomach.
According to the EPA, as much as 860 billion gallons of sewage are
dumped into our beautiful rivers and lakes every year.
Most of this waste comes from combined sewage systems built in the 19th
and early 20th centuries. These outdated systems handle both storm water
and sewage. The problem is they were designed to overflow during heavy
storms.
As you might imagine, they’re now viewed as a threat to public health
and the environment.
The big question of course is what’s behind this crisis?
Simply stated, America’s sewer systems are aging and in some cases
becoming unusable. A portion of our sewer pipes are significantly
decayed. And this is causing leaks, voids, and overflow issues.
How bad are they?
Bad enough for the American Society of Civil Engineers to give
wastewater infrastructure a D- on their 2007 report card. It was the
worst grade given for any infrastructure category.
Clearly, our national wastewater treatment system needs major repairs.
This rapidly decaying infrastructure is nothing less than a ticking time
bomb. Federal, state, and local governments have no choice but to step
up investments in wastewater treatment infrastructure.
Of course, it’s going to take a monumental effort and a ton of money.
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The Associated General Contractors of America say “modernizing and
replacing aging water infrastructure may be the single largest public
works endeavor in our nation’s history.” And the EPA estimates the
project will cost a whopping $400 to $600 billion over the next 20
years.
Fortunately, the federal government is already loosening up the purse
strings.
The American Recovery and Reinvestment Act of 2009 allocated $4 billion
for wastewater treatment. A bill passed by the House authorizes $19.4
billion over five years. And a Senate bill authorizes more than $20
billion over five years.
The last two bills are still working their way through Congress. But it
looks like the government is getting ready to spend big bucks on
wastewater treatment infrastructure.
This is great news for one particular company.
Allow me to introduce Insituform Technologies (INSU).
INSU is a leading global provider of sewer pipeline rehabilitation
services. They also provide rehabilitation and corrosion protection for
drinking water, energy, and mining pipelines.
In 1971, INSU developed their flagship cured-in-place-pipe (CIPP)
process. It’s a trenchless technology for rehabilitating sewer
pipelines. Over the past 40 years, INSU has used CIPP to reconstruct
more than 17,000 miles of underground pipe infrastructure worldwide.
Municipalities love CIPP because they don’t have to dig up the streets
to fix their sewer systems. In other words, CIPP saves them a huge
amount of time and money.
Despite the challenging economy, business is booming at INSU.
Take a look at the company’s sizzling first half 2010 numbers…
Revenue jumped 38% to $429 million. Net income more than quadrupled to
just over $24 million. And earnings soared 313% to $0.62 per share.
And there’s more to come in the second half…
The company’s CEO recently said “market conditions are continuing to
improve on a global basis.” And he tightened up earnings guidance for
the year to a range of $1.50 to $1.55 per share.
I’m sure the company’s hefty contract backlog was also behind the
glowing outlook. INSU is sitting on a staggering $475 million in orders. This backlog will gradually be converted into revenue as the company
completes the contracts.
But here’s the crazy part…
INSU shares are badly misvalued.
At a recent price of $21.51, the shares are trading at just 14x the 2010
estimate of $1.53. That’s a low P/E for a company expected to grow
earnings 24% a year.
In fact, INSU is sporting a paltry PEG ratio of 0.55.
These shares could easily trade up to $31 or more over the next year.
That’s upside potential of at least 44%. Not too shabby in this up and
down market.
Take a closer look at INSU for your own portfolio.
The massive wastewater treatment infrastructure rehabilitation project
should provide steady revenues for years to come. Plus, the energy and
mining pipeline rehabilitation business offers huge additional upside.
Best of all, the recent pullback gives you an opportunity to get in at a
nice discount.
•
Semiconductor ETFs Surging Higher
Chip stocks are rallying on a bullish outlook from Intel (INTC) on
embedded microchips. The industry titan expects the embedded microchip
market to grow a stunning 25% annually over the next four to five years. Surprise, surprise… semiconductor ETFs are surging higher:
Direxion Daily Semiconductor Bull 3X Shares (SOXL) is up 6.1%
ProShares Ultra Semiconductors (USD) is up 3.3%
SPDR S&P Semiconductor (XSD) is up 2.2%
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