Should We Follow Mohnish Pabrai Into HORSEHEAD HOLDING CORP. (ZINC)?


Mohnish Pabrai, the famous value investor, is managing more than $340 million in total asset under management. Interestingly, he held a concentrated portfolio of only six stocks. Since June 21, he has begun to add HORSEHEAD HOLDING CORP. (NASDAQ:ZINC) continuously to his holdings to own nearly 2.1 million shares in the company. At the time of writing, HORSEHEAD HOLDING CORP. (NASDAQ:ZINC) accounted for around 6.7% of his total portfolio. Let’s take a closer look to determine whether or not we should follow Mohnish Pabrai into HORSEHEAD HOLDING CORP. (NASDAQ:ZINC).

Business snapshot

HORSEHEAD HOLDING CORP. (NASDAQ:ZINC) is considered the leader in zinc and zinc-related products. Moreover, the company also does an electric arc furnace dust recycle. It operates in two main business segments: Zinc and Nickel. Most of its revenue, $380 million, or 87.2% of the total revenue, was generated from the Zinc segment while the Nickel segment contributed only $56.8 million in sales. However, in 2012, while the Nickel segment generated more than $15 million in profit, Zinc incurred a loss of more than $56.7 million. The 2012 consolidated loss was more than $30.4 million, partly due to the $25.3 million impairment charges related to Monaca, Pennsylvania facility.

The company reported that it was the leading supplier of zinc metal in North America, to around 90 hot-dip galvanizers. Moreover, the zinc oxide is sold to more than 200 customers in the industry of tire and rubber, chemicals, paints, plastics and ceramics. In terms of raw materials, around 79% was  sourced through the company’s EAF dust recycling operations, while 21% were remnants of the steel galvanizing process. The business had quite a decent balance sheet. As of March 2013, it had $383 million in equity, $182 million in cash and nearly $270 million in debt. HORSEHEAD HOLDING CORP. (NASDAQ:ZINC) is trading at $12.30 per share, with the total market cap of $543.8 million. The market values the company at more than 12.2 times its forward earnings and more than 1.4 times its book value.

Not so cheap compared to its peers

Compared to its peers Teck Resources Ltd (USA) (NYSE:TCK) and US Ecology Inc. (NASDAQ:ECOL), HORSEHEAD HOLDING CORP. (NASDAQ:ZINC)’s earnings valuations run right down the middle. Teck Resources Ltd (USA) (NYSE:TCK) is trading at $21.30 per share, with a total market cap of nearly 12.4 billion. The market values Teck Resources Ltd (USA) (NYSE:TCK) much more cheaply, at nearly 8.4 times its forward earnings. Teck Resources had a much stronger balance sheet than Horsehead. As of March 2013, it had more than $18.4 billion in equity, nearly $3 billion in cash and more than $7.3 billion in debt. Moreover, it booked more than $5.6 billion in deferred taxes liabilities, which could be considered an interest-free loan from the government.