A stock with lots of "stories" that could cause it to soar
A stock that I've been following on and off for a long time, Great Lakes Dredge & Dock Corporation (GLDD), is getting absolutely pounded by Mr. Market today after posting yet another quarterly loss. It's interesting, to me GLDD's stock seems to always outperform the company's actual real-world performance.
The 9% hit that it is taking today might be an interesting entry point, IF you believe a few stories that are associated with this stock. Man I love story stocks.
The first is that GLDD is selling off its crummy demolition business. Eliminating the losses from it should reveal the true earning power of its dredging business.
Of course, the results from GLDD's other divisions weren't very good this quarter either. The company is blaming a lot of that underperformance on the weather. I'm always a little skeptical when a company like a retailer blames poor weather for lackluster results, but a company that dredges lankes, rivers and ports with ships I'm more inclined to believe...particularly after living through this past winter ;). Here's the story directly from the company's CEO: "The first two months of the quarter were impacted by severe weather, which both contributed to longer project durations and equipment downtime for maintenance, resulting in reduced gross profit margin...The severe weather delays will result in revenues to be earned in future periods as the work on the underlying projects is completed."
Yet another issue with GLDD's stock was the underutilization of its assets in the Middle East. Again there is a story to explain why this might get better. According to the CEO "The margin contraction also was driven by minimal dredging activity in the Middle East. Our fleet located in the Middle East was essentially idle in the quarter; however, work has begun on a project in Saudi Arabia and the Company is pursuing strong possibilities to put the fleet to work in the second half of the year."
By far potentially the most important catalyst for the stock is that the government is responsible for a tremendous amount of GLDD's business. Huh? One would think that at a time when the government is trying to cut spending that having it as a major customer would be a bad thing. That's not necessarily the case with GLDD...again if you believe the story that the passage of the much talked about (at least in this industry I've been hearing about it for a loooong time now) Water Resources Reform and Development Act will unlock a ton of funds from the Harbor Maintenance Trust Fund that were originally intended to be used for things like port maintenance but have been being siphoned off by the government for other uses. In my research on the subject, it appears as though the passage of the bill is actually very possible. The Water Resources Reform and Development Act has already passed the House 417-3. And supposedly House and Senate negotiators have "since made considerable progress on a final agreement." I've read that a bill might be done potentially by as soon as Memorial Day. We'll see. If it does pass I could certainly see it as being a huge benefit to GLDD.
Great Lakes Reports First Quarter Results