Not So Durable

GTS Duratek stock slumps after the market finds a few cracks

No matter how good an idea a company is banking on, it often seems the stock market is impressed with just one thing: profits. For an example, you needn’t look further than GTS Duratek (Nasdaq: DRTK), one of our picks in the November 1996 Stockpile.

On the surface, Duratek has a clever take on the environmental clean-up business. Through the magic of science, the company can take nuclear waste, sludge and other contaminants, put them through a process called vitrification, and come out with an end product of glass that can be sold on the open market. In short, Duratek landed upon the kind of gee- whiz story that promised sizable future earnings.
Sounds good, except for the fact that Duratek found cracks in a processing plant that had been in operation just a few months. The problem was serious enough to force the company to call in repair crews and take a $5.9 million charge. That amounted to a 41 cents a share loss for Duratek in the first quarter, a huge amount considering the company managed no more than 4 cents a share in net income for 1996.
It’s no surprise then that Duratek’s stock took a hit, tumbling to a 52- week low of $4.88. The shares have since rebounded to $10.63, which is still down from $15.75 when we picked it, and still quite a distance from its 52-week high of $19.50 reached last October.

That’s indeed a setback, but not one that can’t be overcome, says Walt L. Clark, financial advisor and vice president of investments for Gruntal & Co., who recommended Duratek last fall. He remains optimistic and thinks the stock could reach $15 within the year. Clark cites 30% revenue growth despite the processing plant foul-up. He’s not alone. Analysts covering the stock think it’s in for a 40% earnings growth over the next five years, compared with 19% for the pollution control industry and 7.6% estimated for the S&P 500. For 1997, the analysts think the company can log 18 cents a share in earnings before charges, and is on its way to 62 cents a share in 1998.

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