Headwaters, Inc. (NYSE:HW)

CAPS Rating: 3 out of 5

The Company is a diversified company providing products, technologies and services in two industries: construction materials, including coal combustion products, and alternative energy.

Recs

7
Player Avatar NetscribeNanoTch (61.70) Submitted: 1/25/2007 8:35:03 AM : Underperform Start Price: $23.69 HW Score: +95.75

Headwaters Inc. provides products, technologies and services in three segments namely construction materials, coal combustion products and alternative energy. Headwaters create value in its businesses by differentiating itself from competitors through the use of technology. The company has the following four subsidiaries: Headwaters Energy Services, Headwaters Resources, Headwaters Construction Materials and Headwaters Technology Innovations Group.

The company recently reported a decline in the revenue for the fourth quarter of fiscal 2006. Although the company saw a revenue growth for the total year 2006, the net profit decreased significantly as operating expenses took a surge.

In the fourth quarter the revenues from the construction materials segment, which constitutes approximately 54% of the total revenues remained flat while the revenues from the other two segments saw a decline. The company’s legacy alternative energy segment business has been seeing a decline in the past. To decrease the reliance on the same, the company is focusing on other two segments of the business. In line with this approach the company is adopting a strategy of acquisitions, which in turn is increasing the company’s indebtedness. Due to this increase in debt, the company’s flexibility is getting limited and it is getting exposed to risks of non-compliance with its loans if profits fall materially short of expectations.

The residential and remodeling business is expected to be soft for the coming 6 months, which will hamper the performance of its construction material segment. Additionally there is an uncertainty regarding the oil prices in the future, which keeps the performance of the alternative energy business in a dilemma. Looking at the current scenario the company is not expected to book an increase in the performance in the coming months and its stock is not expected to live up the investor’s expectations.

Member Avatar NetscribeNanoTch (61.70) Submitted: 5/14/2007 6:46:14 AM
Recs: 0

Headwaters, construction material business, constituting more that 50% of the total revenues of the company, continued to be hurt by a downturn in the residential housing and re-modeling markets even in the second quarter of 2007. Although the company reported a rise in the net profits, the upside was mainly due to the recognition of $25.9 million of previously deferred licensing revenue in the engineered fuels business and related tax credits that lowered the tax rate to 17%.

Headwaters Inc. provides products, technologies and services in three segments namely construction materials, coal combustion products and alternative energy through its four subsidiaries, Headwaters Energy Services, Headwaters Resources, Headwaters Construction Materials and Headwaters Technology Innovations Group. The company has a strategy of expanding its business through acquisitions forcing it to operate with a high degree of leverage. This debt limits its flexibility and exposes the company to risks of non-compliance with its loans if profits fall materially short of expectations.

Moreover, the alternative energy segment also saw a decline in its revenues in the quarter and the performance of this segment dependent on entry of the company into new energy services businesses. There are no assurances new customers and partners will emerge. In addition the company operates in industries subject to significant environmental regulation adding more risk to future flow of revenues. The housing sector is expected to continue to pressure the construction material segment, in turn pressurizing the stock in near term.

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