Fairmount Santrol Holdings Inc (NYSE:FMSA) rose 7.03% to close at $9.74 on Monday, trading 1.73 million shares.
The immediate cause of the bump up may be the Accumulate recommendation from analysts at Johnson Rice, who initiated coverage on Fairmount yesterday.
Fairmount Santrol, which is based out of Chesterland, Ohio, is a provider of high-performance sand and sand-based products used by oil and gas exploration and production companies to enhance the productivity of their wells.
The company’s curable resin-coated sand, a type of proppant, is useful to prevent sand and proppant flow back in horizontal oil wells. The resin-coated sand locks into fractures, preventing proppant flowback and maintaining high conductivity to facilitate strong production, says the Fairmount website.
Fairmount Santrol Holdings Inc (NYSE:FMSA) pops up on analysts’ radar screens
In the last four months analysts at Citigroup (July 7, Buy rating), Barclays (August 10, Equal Weight rating), Credit Suisse (September 7, Neutral rating) and Johnson Rice (October 10, Accumulate rating) have initiated coverage on Fairmount Santrol Holdings Inc.
During most of this time the stock was consolidating inside a sideways symmetrical triangle pattern, but broke out of this range at end-September.
According to Credit Suisse analyst James Wickund, the factors working in favor of the company include its exposure to the high-end and low-end of the proppant market, access to 40-plus transload facilities and positioning on Class I railroads, and ownership of the largest low-cost mine amongst listed rivals.
However, the analyst is apprehensive of equity dilution given that Fairmount’s balance sheet is weighed under by debt of which $1.2 billion will become due for repayment by 2019. The current slowdown in the exploration industry, as a fallout of low energy prices, has also curtailed demand for the company’s tempered resin-coated proppant in the short to medium term.
Fairmount Santrol Holdings Inc (NYSE:FMSA) technical chart shows higher prices ahead
Regardless of analysts’ misgivings, the technical picture at Fairmount is fairly strong.
On the weekly chart the stock has formed a bullish inverted head and shoulders pattern with a neckline at $8.95. Fairmount has penetrated this neckline over the past two weeks and looks set for a bounce higher, though investors should be prepared for the inevitable pullback.