Three Overlooked Small Cap Environmental Services or Remediation Stocks: VSR, EEI & CESX

Small cap stocks Versar Inc (NYSEMKT: VSR), Ecology and Environment, Inc (NASDAQ: EEI) and CES Synergies Inc (OTCBB: CESX) provide various environmental, technical, management and related services to government and private sector clients. And while a GOP controlled congress may limit the growth of government spending, the private sector will still need to comply with increasingly onerous environmental and other regulations coming from the government. Moreover, an improving economy will lead to more construction and engineering work along with the need for various environmental and remediation services. With those thoughts in mind, here is what you need to know about all three small cap environmental services stocks:

Versar Inc. A global project management company based in the Washington, DC metropolitan area, small cap Versar Inc has provided technical and management support delivering construction management, environmental sciences and engineering infrastructure solutions to federal, state and local government clients as well as to industries worldwide. In early November, Versar Inc reported first quarter of fiscal year 2015 revenue of $29.6 million compared to revenues of $29.1 million with an 18% sequential revenue increase compared to the fourth quarter of fiscal 2014. The net loss was $89,000 compared to net income of $659,000 while as of September 26, 2014, the company recorded a funded backlog of approximately $223 million for an increase of 96% compared to $114 million of funded backlog at the end of fiscal year 2014. The CEO stated in the earnings release:

"During the quarter we saw a significant contribution from J.M. Waller through several contract awards.  Our backlog is robust, and a large portion of that can be attributed to contracts we have won due to the expanded capabilities that we are able to offer through our strategic acquisitions of Waller and GMI.  Sequentially, we saw a solid uptick in revenue growth as government funding that had been delayed by last fall's sequestration, began to come through. Additionally, earlier this week we announced a $5.1 million contract received by VersarPPS for protective suits to be used as part of the U.K.'s emergency response efforts around Ebola.  With the increased concern relating to the transmission of the virus and the focus on minimizing the exposure of healthcare workers and others who may encounter Ebola patients, we are seeing heightened interest in our protective suits and equipment… We are seeing traction from our recent acquisitions and believe our wide range of capabilities and our ability to bring our solutions virtually anywhere in the world are a competitive advantage that position us well to continue to expand our customer base and return to profitability in fiscal year 2015."

The Ebola connection had caused Versar Inc's shares to temporarily spike back in October to put the stock back on the radar screen of investors and traders alike, but the company's backlog also makes the stock potentially interesting moving forward. On Tuesday, small cap Versar Inc fell 0.98% to $3.01 (VSR has a 52 week trading range of $2.69 to $7.84 a share) for a market cap of $29.37 million plus the stock is down 37.7% since the start of the year and up 2% over the past five years.

Ecology and Environment, Inc. A recognized global leader in environmental management, small cap Ecology and Environment, Inc employs nearly 1,000 respected experts in 85 engineering and scientific disciplines plus has offices in 50 locations around the globe. Since 1970, the company has completed over 50,000 projects in 122 different countries. Last week, Ecology and Environment, Inc reported consolidated revenue less subcontract costs of $28.4 million compared to $29.9 million reported in the first quarter of fiscal year 2014 and net income of $0.8 million for year over year improvement of $0.4 million and a $1.5 million improvement from the loss of $0.7 million in the previous quarter ended July 31, 2014. Near the end of October, Ecology and Environment, Inc reported a 5% fall in revenue to $128.4 million and a consolidated net loss of $1.4 million for a year over year improvement of 35% from the net loss of $2.1 million. There's reason to think revenue will improve as in September, Ecology and Environment, Inc reported a $7.8 million, 36-month contract for consultant services with the Illinois Department of Transportation (IDOT) covering hazardous waste and underground storage tank investigations at sites of planned IDOT construction activities. In addition, the company announced it was awarded a two-year contract extension valued at $21.4 million by the US Army Corps of Engineers (USACE) Kansas City District to provide Architect-Engineer Services on a wide variety of Hazardous, Toxic and Radioactive Waste environmental projects. On Tuesday, small cap Ecology and Environment, Inc rose 1.72% to $8.88 (EEI has a 52 week trading range of $8.35 to $12.78 a share) for a market cap of $38.08 million plus the stock is down 19.3% since the start of the year and down 37.9% over the past five years.

CES Synergies Inc. Through its subsidiary, Cross Environmental Services, Inc, small cap CES Synergies is a specialty environmental services company providing quality environmental contracting solutions, demolition and remediation services to commercial and industrial customers plus federal, state and municipal entities. Services include (but are not limited to) asbestos/lead abatement, hazardous materials removal, mold remediation and prevention, indoor air quality/duct cleaning, interior selective demolition, underground storage tank removal, concrete crushing, and demolition and wrecking for the state of Florida (Note: The company is licensed in 12 states). Previous projects worth mentioning include the following: Midway Atoll Asbestos and Lead Clean-up Promiscuous Dump Clean-up, East Pineville, Louisiana Promiscuous Dump Clean-up, Elko, Nevada Promiscuous Dump Clean-up, Ruby Falls, Nevada Promiscuous Dump Clean-up, Wells, Nevada Gold Mine Environmental Clean-up, Eureka, Nevada

It should be mentioned that Cross Environmental Services, Inc was founded in 1988 by Clyde "Al" Biston - a pioneer in the environmental contracting business who has supervised the removal of more than 40 million square feet of asbestos containing materials on projects in Florida and Georgia along with many large-scale demolition and remediation projects. Moving forward, the company's growth strategy includes the following plans:

Expand Regional Presence Broaden Geographic Footprint Grow Government Business Acquire Complementary Businesses

Back in August, CES Synergies Inc reported a 38% year over year and a 24% sequential revenue increase to $4.7 million as remediation contributed $1.6 million to consolidated revenue and demolition contributed $3 million. Gross margin also increased to 28%, there was an operating profit of $62,000 (verses an operating loss of $362,000 in the second quarter of last year) and net income was $138,000. In November, CES Synergies Inc reported a 17% revenue increase to $4.4 million (as remediation contributed $3.1 million to consolidated revenue and demolition contributed $1.9 million) and a net loss of $0.9 million. The CEO stated:

"Our revenue growth and attention to cost of revenue remains a primary focus. We continue to utilize fewer subcontractors and were able to lower job site and other indirect costs. With our combined remediation and demolition expertise, we believe we are uniquely qualified to pursue and win larger projects which will contribute to improved margin performance as compared to 2013. In support of our strategy to expand our geographical reach, the team brought in several new contracts including remediation projects for the retired DTE Energy Plant in Marysville, MI, as well as demolition projects for FDOT. The market remains strong and we believe we are well positioned to capitalize on the opportunities we're seeing in the market."

On Tuesday, small cap CES Synergies fell 5.7% to $0.99 (CESX has a 52 week trading range of $0.07 to $2.71 a share) for a market cap of $46.22 million plus the stock is up 94.1% since late January.