If live here and you follow business news at all, you’ve heard about the industrial expansion happening along the Gulf Coast, particularly in east Texas and south Louisiana. And if you’re an investor, you might be wondering how to get in on the action.
As Baton Rouge investment manager Ryan Thibodeaux tells Business Report in its latest issue, your opening may have arrived. While a number of companies are poised to grow in value thanks to the industrial “boom,” he says in some cases the stock market hasn’t yet caught on to the trend. That’s partly because low oil prices are dragging down the perceived value of companies throughout the region’s industrial sector, he believes.
“The stocks of the companies that are going to be beneficiaries of the industrial expansion that’s unfolding along the Gulf Coast,” Thibodeaux says, “have been depressed because of their perceived or actual linkage to what’s going on in energy.”
The “poster child” for his thesis is Baton Rouge’s own H&E Equipment Services, which rents equipment to industrial contractors—many of which will be quite busy building new chemical plants or expanding existing facilities. Thibodeaux’s firm is invested in H&E, so perhaps he’s biased about its prospects. At the same time, you could also say he has put his clients’ money where his mouth is.
Thibodeaux says the company’s stock has lost more than 40% of its value since last fall, which reflects a “gross misunderstanding of their exposure to energy.”
“The fundamentals of the company haven’t changed,” he says. “These guys did $315 million in cash flow last year, and they’ll do $330 million to $350 million in cash flow this year, in spite of the headwind from energy.”
To be precise, H&E is projecting 2015 EBITDA [earnings before interest, taxes, depreciation and amortization] in the range of $334 million to $352 million, guidance the company says it offered to counteract investors’ possible misunderstanding about the impact of the oil and gas industry’s decline on H&E.
H&E’s branches in Texas, obviously a big oil state, have seen double-digit increases, Thibodeaux says, adding that the company recently implemented a “stress test” and found that even if all of its business with energy companies went away, it would only lose about 5% of its 2014 cash flow.
Thibodeaux isn’t the only one bullish on investing in the boom. Tulane business professor Peter Ricchiuti predicts the stretch of south Louisiana from New Orleans to Lake Charles could be “the best business area in the United States over the next 10 years.” He is the founder of Burkenroad Reports, a program in which students intensively research public companies based in Gulf Coast states.
“I don’t think [investors] know that the same thing that is hurting the energy companies is the thing that’s helping these plants along the Gulf Coast,” he says. “Low prices for energy have been a windfall to them.”
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