Citi's Top SMID Pick Is U.S. Silica

On Monday, Citi issued a company note on U.S. Silica Holdings Inc SLCA, initiating coverage on the company after analysis showed strong secular growth. Currently, analysts at Citi rate U.S. Silica as a Buy with a $25 price target.

Scott Gruber and Michael Sabella, analysts at Citi, wrote, "U.S. Silica is our top U.S. SMID pick as the stock combines the strongest secular growth story of any company under our coverage, significant operating leverage, manageable balance sheet risk and a modest valuation. We forecast a doubling of revenues over 2016-18 and EBITDA eclipsing the 2014 peak."

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Justification: Profitability

Analysts at Citi gave the key reason why they see strength in U.S. Silica as profitability.

Analysts noted that while U.S. Sicilia has a large amount of fixed costs, due to the company's strong network position, they have the potential to take significant market share and achieve high profitability due to economies of scale.

Furthermore, while cash flows are expected to decline in 2016 due to the large investments that are necessary, Citi noted that the company has a large enough cash balance to fund itself through 2018.

At the time of publication, U.S. Silica was trading up 7.27 percent on the day at $19.19.