This teaser ad comes from Eric Dickson at Trinity Research, who is now selling something that’s not quite like a newsletter — he’s pitching both a series of “Special reports” that you can buy for $99 each, and a membership in the Flagler Financial Group that gets you access to all of the reports and any other reports they issue, for $995 (with no guarantee that there will ever be another “special report” after this first series of three they’re touting).

My impulse is to be quite cautious about the “special reports” that Dickson and his colleague Tim Fields publish at Trinity, in part because they’ve shown a propensity in the past to keep republishing the same report for years and years — they’ve continued to recycle their old “forever battery” and WiMax teasers from five or six years ago, and I get questions about those via email every few weeks — and assuming that they’re not updating those reports to change the companies, a few of the stocks they’ve teased for those special reports at their Untapped Wealth newsletter have been quite awful (like CLWR at $20, or XDSL at ten cents). They’re not alone in this, of course, just wanted to issue that note of caution before we uncover this latest report subject.

The one that’s really catching the eye of readers, at least according to my email inbox, is the hydrofracturing cleanup play that’s being teased by Dickson as the focus of the special report, Cleaning Up: How This Undiscovered Company Is Transforming Fracking Waste Into Serious Profits.

So what is our fracking waste company?

Here are the clues:

“You see, this company works in some of the most prolific shale areas in the America; Utica, Eagle Ford, Haynesville, Marcellus(‘Little Saudi Arabia’), Barnett and Tuscaloosa Marine…

“And what they’re doing in these oil plays couldn’t be more important, especially to the residents of these areas. Their job is simple? They clean or dispose of the waste water generated through fracking – and in these areas, for this company at least – business is BOOMING!

…

“In 2011 they reported $156,837,000 in revenues – up more than 4,000% from 2009!!

…

“Their earnings are up more than 5,771% in that same two year period. In fact, their earnings were so strong in Q3 2011, that they beat analysts’ estimates by a whopping 300%!

“So what makes this company a smart play?

“Well, besides the fact that their earnings are phenomenal, and their revenues continue to mount at epic proportions…

“Consider this – while right now their shares are trading under $4 ($3.75 as of this writing) expert analysts are expecting them to double and reach $8 before the year is out…

“Their earnings are up more than 5,771% in that same two year period. In fact, their earnings were so strong in Q3 2011, that they beat analysts’ estimates by a whopping 300%!

“So what makes this company a smart play?

“Well, besides the fact that their earnings are phenomenal, and their revenues continue to mount at epic proportions…

“Consider this – while right now their shares are trading under $4 ($3.75 as of this writing) expert analysts are expecting them to double and reach $8 before the year is out….

“Yes, you read that right… their shares are expected to double in JUST the next 2 months!”

OK, so if “before the year is out” is “in the next 2 months” then we’ve got another somewhat stale teaser here — I got it via email in one of Dickson’s mailings just today, so they’re still sending it, but clearly they wrote it in October.

And I hate to break it to you, but the company they’re teasing did not actually double in the last two months of the year — though, the optimist points out, that means perhaps you haven’t missed out yet … right?

Well, maybe. This stock is Heckmann (HEK), a company that was widely covered a year or two ago as they started to try to “wrap up” the (mostly) very local little water cleaning and supply companies that serve fracking sites into a national corporation. They got attention both because the sector was hot (water supply, cleanup and disposal is a major issue for hydrofracking projects, and a big point of political concern, especially in heavily populated areas like the Marcellus Shale) and because the CEO has done this before — Richard Heckmann built US Filter into a huge company and sold it for dramatic gains after making 260 acquisitions of small companies to consolidate that sector.

So investors jumped on it when he raised “blank check” money to build Heckmann Corp five or six years ago, thinking he’d do the same thing again — he started with a not-so-successful purchase of a Chinese bottled water company for about $600 million dollars back in the boom days of early 2008, though that appeared to be a fraud within a year or so and was off the books by September 2011. Coincidentally, that $600 million is now pretty close to the current reported market cap of HEK, which several years ago moved into the oil service sector with water disposal and cleaning operations, including a water disposal pipeline, and more recently diversified (to the market’s chagrin) into waste oil treatment (as in recycling motor oil) with the purchase of Thermo Fluids in early 2012.

You can see Heckmann’s latest investor presentation here, I’ve actually been encouraged by the latest of Heckmann’s acquisitions, they just completed their biggest recent deal with the acquisition of Badlands Power Fuels, a water treatment company serving the Bakken that helped reassure analysts that Heckmann is still focused on fracking water consolidation. That deal also bumped up the debt at Heckmann and they issued 95 million shares for the purchase, so it’s still not particularly clear what the earnings per share will look like (they don’t give much guidance), and there hasn’t been a quarterly release since the deal closed in December, so there’s likely to be some uncertainty remaining for quite a while since this acquisition is such a major one. The CEO of Power Fuels is now taking over as CEO of Heckmann, though Richard Heckmann is remaining on as Executive Chairman and will, presumably, still be deal-hungry.

Oh, and the reported market cap that you see in most of the finance sites doesn’t reflect the merger with Power Fuels yet — so HEK isn’t really a $600 million company anymore, it’s more like a $1 billion company. According to their presentation the total enterprise value will be about $1.6 billion ($550+ million of debt), and EBITDA (earnings before interest, taxes, depreciation and amortization) around $200 million, so EV/EBITDA is about 8, which I would say is not dirt cheap for a good-sized and capital intensive company, but not outlandishly high, particularly if they can grow. Veolia (VE), the mega water treatment company, carries an EV/EBITDA of 7 and should grow far more slowly, just to give one comparison (the two companies are certainly not easily comparable). I would say that the deal looks like it should be pretty dilutive, since Power Fuels will be generating about half the revenue but only a quarter of the EBITDA of the combined company, but that’s based just on some pretty limited numbers from the presentation. So far they’ve mostly been about break-even, with operating costs pretty much equaling their gross profit most of the time … that gives some call for concern if the deal doesn’t juice the margins, since their newly increased debt levels will take up a lot of cash flow (it looks like they’re paying about 8% on that debt), though I suppose $200 million of EBITDA ought to be able to handle what should be $40-50 million in annual interest costs.

So far analysts are more optimistic than they were last Summer, but not so much that they expect the shares to double in two months (I don’t think that was ever a fair interpretation of analyst targets on HEK). They are targeting an average of $7 a share and those targets are usually “within 12 months” … they base this, at least in part, on a turnaround in earnings — they’re looking for a profit in 2013 in the neighborhood of 15-20 cents a share, so if they’re able to keep growing revenue and consolidating the industry with small acquisitions at reasonable prices you can certainly justify 15-25 times earnings for HEK. Though it’s worth remembering that HEK doesn’t give much guidance about earnings, and analysts have not done a very good job of guessing at them in the past — and at least one analysts sees them losing money again this year — which is certainly within the realm of possibility. The average rating is still a “hold,” I think, so it’s not as though the ranks of analysts have been imbued with feckless enthusiasm just yet… though Jim Cramer apparently recently reiterated that he “believes in Heckmann”. You can interpret that however you like.

So … looks like the teaser is a bit stale, but it is a real company that gets a lot of attention from pundits and from newsletter guys thanks to Richard Heckmann’s acquisitive (and mostly successful) past ventures, and it is just below $4 so the price isn’t markedly different than when the teaser was written. I’ve almost suggested Heckmann to the Irregulars a couple times in the past but have not gotten comfortable enough with their strategy or their earnings prospects, I’ll have to take another look now that they’ve done this big transformative deal and see if I like them better — so far, color me curious.

What do you think? Let us know with a comment below.