The shares of Hudson Technologies (HDSN) have seen a decline following the release of their first-quarter results, which indicated that low prices for hydrofluorocarbons (HFCs) could continue to impact the company’s results for the coming months. Despite higher revenue due to increased carbon-credit sales and more service projects, lower-than-expected selling prices and a decrease in revenue from a contract with the Defense Logistics Agency led to earnings meeting Wall Street’s projections at just 20 cents per share.
CEO Brian Coleman revealed that massive imports of virgin HFCs in 2021 and 2022 have created a surplus ahead of production cuts that started this year. This surplus, estimated to be about half of the industry’s annual supply, is expected to keep prices low for the foreseeable future. However, Coleman remains optimistic that prices will eventually rebound as we progress through the cooling season and regulations on refrigerants become stricter.
HDSN anticipates full-year revenue between $250 million to $265 million, lower than analysts’ projections, if HFC prices remain depressed. Despite this, the company is confident in increased demand during the upcoming selling season and expects margins to improve as prices rise. The regulatory environment is also expected to drive industry consolidation, presenting acquisition opportunities that could boost earnings and cash flows for HDSN.
With a strong financial position, including zero debt and $10.6 million in cash from 2023’s free cash flow production, HDSN is prepared to take advantage of opportunities that may arise. The company is poised for growth as it navigates through the current market challenges, and analysts are optimistic about its long-term prospects. These factors contribute to the belief that the post-earnings weakness in HDSN’s shares is temporary and that the company will bounce back soon.
Julius Juenemann, CFA, the equity analyst and associate editor of Forbes Special Situation Survey and Forbes Investor, remains bullish on HDSN, seeing potential for the company to thrive amidst changing market conditions. The stock is recommended in the Forbes Investor newsletter, with a positive outlook on its future performance. Investors are encouraged to consider HDSN and other undervalued gems with significant upside through the Forbes Investor subscription.
