Hudson Technologies’ (HDSN) shares climbed over 26% after reporting much better-than-expected Q2 results last night. Indeed, even with revenues for the period of $90.5 million coming in a smidgen below the $90.8 million analysts had been projecting—due to lower selling prices for certain refrigerants—and even as the gap between its inventory costs and sales prices continued to narrow as expected, the company reported earnings of 41 cents per share, which comfortably exceeded the 36-cent consensus estimate. This was driven by the continued sequential recovery in HDSN’s gross margin, which following the disappointing 32% it had recorded in Q4 of 2022 had recovered to 39% in Q1 and improved to a solid 40% in Q2 and remained well above its long-term target of 35%.
More importantly, while the warmer weather arrived a little later than normal this year, HDSN continues to expect a strong cooling season overall as the recent surge in temperatures has provided opportunities for increased service calls and refrigerant sales. And when you consider that refrigerant prices and demand for HDSN’s much higher-margin reclaimed refrigerants should also continue to rise as we approach the next stepdown in HFC production and consumption levels under the AIM Act to 60% of baseline levels scheduled for 2024 (from 90% currently), I think the potential for further significant outperformance in the periods ahead remains. Thus, while I’m happy to see these results helping HDSN’s stock surge on a day of general market weakness, its still very cheap forward P/E of just 9 times the $1.19 analysts currently expect HDSN to earn in 2023 suggests a lot more upside to come in my view.
Julius Juenemann, CFA is the equity analyst and associate editor of the Forbes Special Situation Survey and Forbes Investor investment newsletters. Hudson Technologies (HDSN) is a current recommendation in the Forbes Investor. To access this and the other stocks being recommended through the Forbes Investor, click here to subscribe.
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