Metalico recently reported the best quarter in the company’s history as soaring metal prices pushed up revenues by 342%. The company has surprised on estimates 3 out of 4 quarters by 30.46%. Metalico has a forward P/E of 9.70.

Company Description

Metalico, Inc. (MEA) is a scrap metal processor headquartered in New Jersey. Metalico operates in two segments: ferrous and non-ferrous scrap metal recycling, and lead fabrication.

Metalico, a Zacks #1 Rank (Strong Buy), closed on its latest acquisition in May 2008 and now operates 20 recycling facilities in New York, Pennsylvania, Ohio, New Jersey, Texas, Mississippi, and West Virginia. It also owns 5 lead fabrication plants in Alabama, Illinois, Nevada, and California.

Refractory metals, such as molybdenum, tungsten and tantalum, are recycled at the central Pennsylvania facility.

In Newark, New Jersey, the company processes used catalytic converters and recycles platinum, palladium, rhodium, known as Platinum Group Metals. The metal is purchased from various sources including manufacturers, small scrap dealers, demolition contractors, and peddlers. The scrap is then sorted and sold to mills, furnaces and foundries.

Metalico Reports a Record Quarter and Surprises by 68%

On July 31, Metalico reported its second quarter earnings and for the second straight quarter easily beat Wall Street estimates, this time by 68%. Net income was $8.1 million, or 22 cents per share, but after the effects of SFAS No. 150 and other charges, was 42 cents per share. Consensus estimates were at 25 cents per share.

Sales surged 342% to $295.1 million from $66.8 million in the year ago period.

The company’s scrap metal segment outperformed as volumes jumped and prices moved higher. Volumes rose 185% for ferrous and 93% for non-ferrous metals year-over-year.

The price increases have been phenomenal. Ferrous metals increased 126% and non-ferrous soared 215% quarter-over-quarter. The largest source of non-ferrous revenue in the quarter was in the Platinum Group Metals (PGM).

The Lead Fabricating segment, which had not been operating at a profit, returned to profitability in the second quarter.

Metalico Issues Cautious Third Quarter Outlook

MEA obviously operates in the highly volatile commodities sector. For the first half of 2008, the company has taken advantage of rising metal prices. For the third quarter, it expects ferrous metal pricing to remain near record levels with both international and domestic demand expected to remain strong.

The company said the non-ferrous prices were settling into a trading range lower than that of the first half. It expects sluggish third quarter pricing for stainless steel and copper and steady prices for aluminum.

PGM prices are off their record levels in the first part of the third quarter, but the company believes they’ll settle into a narrow, but lower, trading range.

Metalico is also still looking to expand. It hopes to complete at least one more acquisition before the end of 2008.

Consensus Estimates Rise for the Third Quarter and the Full Year

Coming off of a record quarter, brokerage analysts have been raising estimates for both the third quarter and the full year. For the third quarter, consensus estimates are up 2 cents in the last week to 33 cents from 31 cents per share.

For the full year, estimates have jumped 12 cents in the last 7 days to $1.22 from $1.10 per share.

Value Fundamentals

Metalico is trading at 9.7x forward earnings. Its price-to-book is 2.73. It has a stellar five year average return on equity (ROE) of 34.07%.

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