Why Metalico (MEA) Stock Is Soaring Today

NEW YORK (TheStreet) -- Metalico  (MEA) soared Tuesday after the scrap metal recycler announced its expectations for its second-quarter results.

The company anticipates revenue of $142 million, which would beat the Capital IQ consensus estimate of $141.86 million. Metalico expects operating income to rise to a range of $2 million to $2.5 million, compared to a loss of $2 million in the same period one year ago. The company cited benefits from increased non-ferrous volumes and improvement in related margins in the second quarter this year. 

Metalico also expects EBITDA to more than double to a range of $6.8 million to $7.2 million, up from $2.6 million in the same quarter last year.

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The stock was up 30.17% to $1.58 at 2:30 p.m. More than 1.9 million shares had changed hands, compared to the average volume of 141,769.

TheStreet Ratings team rates METALICO INC as a "sell" with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate METALICO INC (MEA) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Commercial Services & Supplies industry. The net income has significantly decreased by 232.3% when compared to the same quarter one year ago, falling from -$1.18 million to -$3.92 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Commercial Services & Supplies industry and the overall market, METALICO INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for METALICO INC is currently extremely low, coming in at 6.47%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.89% is significantly below that of the industry average.
  • The share price of METALICO INC has not done very well: it is down 8.40% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • METALICO INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, METALICO INC reported poor results of -$0.73 versus -$0.27 in the prior year. This year, the market expects an improvement in earnings (-$0.13 versus -$0.73).
  • You can view the full analysis from the report here: MEA Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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