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Based in Houston, Texas, C&J Energy Services (CJES) scheduled a $305 million IPO with a market capitalization of $1.26 billion at a price range mid-point of $26.50 for Friday, July 29. CJES is our co-IPO pick of the week. The full IPO calendar for the week of July 25 includes 12 IPOs scheduled to raise $2 billion.

OBSERVATIONS -- CJES is a rapidly growing independent provider of premium hydraulic fracturing and coiled tubing services with a focus on complex, technically demanding well completions.

PLUS’s -- March 2011 quarter revenue rose 290% to $127 million from $33 million for the March 2010 quarter. Net income rose to 1218% to $29 million from $2.2 million.

Annualizing the March 2011 quarter the price-to-earnings multiple is 11, which is low for a fast growth service company.

MINUS’s -- BIG INCONSISTENCY -- There is a big inconsistency between CJES’s S-1 filed July 18, 2011 and the CJES’s retail road show. The S-1 shows that 76% of the company’s stock will be sold, by selling shareholders. Page 4

The retail road show presentation shows something different: 4.75 million shares from the company and 6.75 million shares from selling shareholders, or 11.5 million shares or 24% of the company.

For the purposes of our IPO analysis here, we assumed the S-1 contains inaccurate, misleading and false information, that undermines the company’s investment credibility. If everything else is in order, however, the false information may not make much of a difference in the big picture.

VALUATION -- Based on annualized price-to-earnings ratios, CJES appears to be undervalued at 11 time earnings.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Profit

Annualizing March 3 mos

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

Margin %

C&J Energy Srvcs (CJES)

$1,261

2.5

11

8.9

16.8

23%

Complete Prod Srvcs (CPX)

$3,000

1.5

19

3.5

5.0

8%

Baker Hughes (BHI)

$34,550

1.9

23

2.4

4.9

8%

Halliburton (HAL)

$52,090

2.5

25

4.8

5.4

10%

Schlumberger (SLB)

$123,690

3.5

33

3.9

10.0

11%

Weatherford (WFT)

$14,370

1.3

61

1.5

3.1

2%


CJES Valuation Metrics

BUSINESS -- CJES is a rapidly growing independent provider of premium hydraulic fracturing and coiled tubing services with a focus on complex, technically demanding well completions.

HYDRAULIC FRACTURING -- Hydraulic fracturing, often called fracking, fracing or hydrofracking, is the process of initiating and subsequently propagating a fracture in a rock layer, employing the pressure of a fluid as the source of energy. The fracturing, known as a frack job (or frac job), is done from a wellbore drilled into reservoir rock formations, in order to increase the extraction rates and ultimate recovery of oil and natural gas.

CJES provides services in conjunction with both conventional and unconventional well completions as well as workover and stimulation operations for existing wells.

CJES competes with a limited number of service companies for what CJES believes to be the most complex hydraulic fracturing projects, which are typically characterized by long lateral segments and multiple fracturing stages in high-pressure formations.

CJES also provides pressure pumping services and other related well stimulation services in connection with our well completion and production enhancement operations.

HISTORY -- CJES historically operated in what it believes to be some of the most geologically challenging basins in South Texas, East Texas/North Louisiana and Western Oklahoma. The customers CKES serves are primarily large exploration and production companies with significant unconventional resource positions, including EOG Resources (EOG), EXCO Resources (XCO), Anadarko Petroleum (APC), Plains Exploration (PXP), Penn Virginia, Petrohawk (HK), El Paso (EP), Apache (APA) and Chesapeake (CHK).

FUTURE -- CJES is the process of acquiring additional hydraulic fracturing fleets and are evaluating opportunities with existing and new customers to expand our operations into new areas throughout the United States with similarly demanding completion and stimulation requirements.

EQUIPMENT -- CJES operates four modern, 15,000 pounds per square inch, or psi, pressure rated hydraulic fracturing fleets with an aggregate 142,000 horsepower, and currently has on order four additional hydraulic fracturing fleets, which, upon delivery, will increase our aggregate horsepower to 270,000 by the end of 2012.

CJES’s hydraulic fracturing equipment is specially designed to handle well completions with long lateral segments and multiple fracturing stages in high-pressure formations. CJES also operates a fleet of 14 coiled tubing units, 16 double-pump pressure pumps and nine single-pump pressure pumps.

CJES’s hydraulic fracturing fleets and coiled tubing units are currently deployed in the Eagle Ford Shale of South Texas, the Haynesville Shale of East Texas/North Louisiana and the Granite Wash of Western Oklahoma.

Recent advances in horizontal drilling and hydraulic fracturing technologies have lowered unit recovery costs in these basins and increased the potential for long-term oil and natural gas development.

Additionally, the increase in the number of drilling permits awarded in the Eagle Ford, Haynesville and Granite Wash regions, coupled with the increasing complexity and technical completion requirements for many wells in these regions, are expected to drive growth in demand for CJES’s well completion services for the foreseeable future. CKES plans to continue to focus on basins with technically demanding hydraulic fracturing requirements.

RECENT DEVELOPMENTS -- On April 28, 2011, CJES acquired Total E&S, Inc., or Total, a manufacturer of hydraulic fracturing, coiled tubing, pressure pumping and other equipment used in the energy services industry and one of our largest suppliers of machinery and equipment.

Total is constructing the hydraulic fracturing pumps for all four of CJES’s on-order fleets. The aggregate purchase price of approximately $33.0 million included $23.0 million in cash to the sellers and $10.0 million in repayment of the outstanding debt and accrued interest of Total.

CJES believes the acquisition of a key supplier provides several strategic advantages, including a significant reduction in exposure to third-party supply chain constraints, shorter cycle times for the delivery of new equipment and replacement parts, a reduction in and greater control of the cost of new equipment, and enhanced operational control of service offerings, each of which should help facilitate continued growth. Furthermore, the Total acquisition is expected to help minimize downtime by enhancing CJES’s capabilities for maintenance and repair of hydraulic fracturing equipment.

Following the acquisition of Total, CJES acquired approximately ten acres of adjacent property and began construction of an approximate 36,000 square feet manufacturing facility. CJES currently expects its new facility to be operational by December 2011. The total cost of construction of the facility is expected to be approximately $1.3 million.

By significantly increasing Total’s manufacturing capacity, CJES expects to further increase its ability to service us and existing and future third-party customers.

COMPETITION -- CJES provides services and products across South Texas, East Texas/North Louisiana and Western Oklahoma, and competes against different companies in each service CJES offers.

Major competitors for fracturing services include Halliburton (HAL), Schlumberger (SLB), Baker Hughes (BHI), Weatherford International (WFT), RPC, Inc., Pumpco, an affiliate of Complete Production Services (CPX), and Frac Tech.

Major competitors for coiled tubing services include Halliburton, Schlumberger, Baker Hughes and a significant number of regional businesses.

USE OF PROCEEDS -- Page four of the July 18, 2011 S-1 clearly says 100% of the IPO proceeds go to selling shareholders, who are offering 76% of CJES. Page four in the July 18, 2011 S-1.

On the other hand CJES’s road show information says that the IPO will include 4.75 million shares from the company and 6.75 million shares from selling shareholders, or 11.5 million shares or 24% of the company, with IPO proceeds to the company allocated to partially fund the purchase price of on-order hydraulic fracturing equipment.

For the purposes of our IPO analysis here, we assumed the S-1 contains inaccurate, misleading and false information, that undermines the company’s investment credibility. If everything else is in order, however, the false information may not make much of a difference in the big picture.

Source: Co-IPO Pick of the Week: C&J Energy Services