U.S. Silica: The Likely Winner In The Frac Sand Cycle
Richard Zeits • 11 Comments
Richard Zeits • 11 Comments
Wed, Sep. 7, 3:17 PM
- U.S. Silica (SLCA +0.8%) is added to the U.S. Focus List at Credit Suisse, which argues that the company is in the “right place [at the] right time" to capitalize on frack and completion intensity through the course of the cycle.
- Credit Suisse says sand stocks should replace land drillers this cycle as the most levered to a recovery in North American activity, as it expects sand demand in 2018 to eclipse the demand level of 2014, while its rig count forecast is ~25% below the upper end of the consensus range, implying further potential upside for sales, margins, and the stock price.
- The firm says SLCA's acquisitions this year of a regional sand mine and supplier, and one of the leading last-mile logistics technology companies, were accretive and establish the company as the most aggressive acquirer of reserves and give it a first-mover advantage in the all-important last-mile logistics space.
Wed, Sep. 7, 3:03 AM
- Don't expect too much out of Q3 oil services results, Credit Suisse says. "While an impressive move off the bottom, the U.S. horizontal rig count is still only 31% of its 2014 average. Not going down anymore is fabulous. But it doesn’t translate into doing well very quickly."
- Still, CS says investors should be more aggressive in buying stocks that miss earnings estimates.
- Firm notes that the focus on efficiency continues. "Sand has replaced land rigs as the under-utilized fixed-cost-base leveraged play on the recovery." Recommends SLCA and HCLP.
- Says that technology and a more efficient client base makes HAL the top “demographic” play over SLB in the near term.
- "BHI and WFT are self-help stories in different stages of improvement, but both have reasons to be in energy portfolios. Manufacturing is challenged with its focus on deepwater, which drives FET as our top pick in the group."
Wed, Aug. 10, 6:55 PM
- The frac sand industry likely will be among the first in the oilfield supply chain to tighten in an upcoming oil and gas recovery, Barclays says.
- Barclays initiates coverage of U.S. Silica (NYSE:SLCA) with an Overweight rating and a $50 price target, saying the company is well positioned for the first stage of a recovery, while Fairmount Santrol (NYSE:FMSA), which the firm rates Equal Weight with a $9 target, may prove stronger later in the cycle.
- The firm says SLCA and FMSA are both high quality companies but are separated by their market positioning and capital structures; in an industry ripe for consolidation, SLCA is the natural consolidator, leveraging its strong balance sheet to pursue accretive M&A, enhancing an already balanced portfolio of low-cost complementary assets.
- FMSA has more exposure to premium proppants through its coated product portfolio, which eventually will recoup lost share and provide a margin tailwind, but later in the cycle, Barclays says.
Tue, Aug. 2, 4:53 PM
Mon, Aug. 1, 5:35 PM
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Mon, Jul. 25, 9:05 AM
Mon, Jul. 18, 5:53 PM
- U.S. Silica (NYSE:SLCA) agrees to acquire the NBR Sand regional frac sand unit of privately held New Birmingham Inc. for ~$210M.
- SLCA says the Tyler, Tex., business operates a single sand mine and plant that has the capacity to produce ~2M tons/year of fine-grade frac sand.
- SLCA expects the acquisition to generate EPS accretion of $0.20-$0.30 in 2017.
Fri, Jul. 15, 12:59 PM
- Fairmount Santrol (FMSA -19.8%) is nearly 20% lower after preliminary Q2 earnings, revenues and adjusted EBITDA all miss estimates, but analysts sees potential weakness in shares.
- Tudor Pickering analysts say the results should not be too surprising given that the U.S. onshore rig count is down 25%-30% Q/Q, and the firm says it retains its Buy rating for FMSA as a preferred oil service name for an "impending” energy market upturn.
- RBC, which rates FMSA at Outperform, still likes the company for strong forecasted volume growth driven by increasing proppant intensity, and sees potential for pricing power, share gains, potential capital structure M&A as the energy cycle matures.
- Jefferies rates FMSA only at Hold, saying the revenue miss may suggest some combination of greater pricing pressure, “negative mix shift” in which the firm sees “less resin coated proppant and a lower percentage of in-basin sales.”
- Also: SLCA -2.5%, HCLP -4.5%, EMES -5.9%, CRR -1.1%.
Thu, Jul. 14, 6:28 PM
- Frac sand producers are lower AH after Fairmount Santrol (NYSE:FMSA) pre-announces larger than expected Q2 losses and weaker than expected revenue.
- FMSA forecasts a Q2 EPS loss of $0.56-$0.58 on revenue of $113M-$115M, vs. analyst consensus for a $0.12/share loss on $136.7M in revenue.
- FMSA sees overall volumes sold during Q2 of 1.9M-2M tons vs. 2.1M tons in Q1 and 2.2M tons in the year-ago quarter, due to "increased pressures" on all proppant volumes, particularly within its coated proppant offerings.
- FMSA -12.5% AH, EMES -4.3%, HCLP -2.5%, SLCA -1%.
Mon, Jul. 11, 2:47 PM
- Frac sand producers Hi-Crush Partners (HCLP +4.5%) and U.S. Silica (SLCA +1.2%) are both upgraded to Buy from Hold at Jefferies, which assumes that sand demand in 2020 is 60% higher than the peak rate set at the end of 2014.
- Jefferies believes the companies are poised from sand demand growth over the next several years, and that number of completion stages will be 40% above the 2014 cycle peak rate.
- The firm raises its price target for HCLP to $20 from $6 and for SLCA to $41 from $25.
Wed, Jun. 15, 2:17 PM
- Hi-Crush Partners (HCLP -4.1%) is lower after upsizing and pricing a public offering of 4.5M units - up from a previously announced offering size of 3M units - at $10.80 each for total gross proceeds of $48.6M.
- Meanwhile, Raymond James upgrades HCLP by two notches to Strong Buy from Market Perform with a $17 price target, saying the latest stock offering along with two other equity offerings in the past three months has significantly reduced balance sheet risk.
- The firm predicts frac sand volumes will jump 91% in 2017 to record levels and surge another 41% in 2018, and "conservatively" estimates that HCLP's volumes will rise by 66% in 2017 and 25% in 2018.
- Earlier this week, DA Davidson downgraded HCLP as well as U.S. Silica (SLCA +1.9%), Emerge Energy (EMES +10%) and Fairmount Santrol (FMSA +4.2%), saying current estimates and valuations for the group are "devoid of reality."
Tue, Jun. 14, 12:49 PM
- Emerge Energy Services (EMES -5%) extends yesterday's pullback after shares more than doubled since the beginning of the month, but today's results are mixed for its frac sand peers.
- Wunderlich raises its price target for EMES to $9 from $4, saying investors are growing more comfortable with the stabilization and a potential recovery in the space; with the large number of drilled uncompleted wells in the U.S., the firm believes it makes sense that completion and sand companies would be the first incremental beneficiaries of an uptick in activity, but adds the initial upticks still have not been noticed by EMES or in the field (Briefing.com).
- The firm also raises its price target for Hi-Crush Partners (HCLP -0.6%) to $11 from $6, believing the recent equity raise made sense as it focuses on debt reduction and improving its financial position both for the downturn and an eventual recovery.
- Also: SLCA -0.7%, FMSA +2.2%.
Mon, Jun. 13, 9:53 AM
- Emerge Energy Services (EMES -8.3%) opens sharply lower as DA Davidson downgrades shares to Underperform from Buy with a $5 price target, saying frac sand names are trading "well ahead of fundamentals for a growing industry that is still in flux."
- The firm views the recent surge in valuations (I, II) and estimates for the frac sand group as "devoid of reality," citing sell-side inconsistencies about the space including assuming anything is normalized in an industry that is relatively new and never been in a steady state and assuming peak margins do not equate to painfully compressed multiples.
- Davidson also downgrades U.S. Silica (SLCA -3.5%) to Neutral from Buy, as well as Hi-Crush Partners (HCLP -5.4) and Fairmount Santrol (FMSA -4.8%) to Underperform from Buy.
Thu, Jun. 9, 3:59 PM
- Emerge Energy Services (EMES +30.2%) surges ~30% on 10x the normal trading volume to reach its highest level since September.
- Bloomberg speculates that the move may be a delayed reaction to Goldman Sachs analyst Waqar Syed's note earlier this week that said the key to EMES improving its balance sheet is selling its fuels business, which could fetch $50M and possibly more, given the current "buyer’s market.”
- Syed estimates that at peak Ebitda, EMES distributable cash flow may be as high as $1.53/unit; if EMES is paying that level of distribution, the unit may be priced “significantly” above where it currently trades.
- Frac sand peers also are higher: SLCA +2.8%, HCLP +2%, FMSA +1.8%.
Thu, May 26, 2:59 PM
- Fairmount Santrol (FMSA +10.5%) is upgraded to Overweight from Equal Weight with a $9 price target at Morgan Stanley, which praises the company's elimination of its debt overhang to 2018-19 vs. 2017.
- The firm thinks a refinancing is still required for FMSA, but it sees reason to believe in a much more favorable capital market environment in 2017-18 vs. today.
- Stanley reiterates its Overweight rating for U.S. Silica (SLCA +0.8%) while upping its stock price target to $37 from $33, which sees the company as a potential industry consolidator given its recent equity raise and clean balance sheet, so accretive M&As could lend near-term upside to shares.
- FMSA, which was upgraded earlier in the week at RBC Capital, has climbed 40% this week.
Mon, May 23, 11:58 AM
- U.S. Silica (SLCA +1.6%) is upgraded to Outperform from Sector Perform with a $33 price target, raised from $27, at RBC Capital, which thinks shares have significant potential upside based on its estimate of mid-cycle earnings power, which is not being fully discounted by investors.
- The firm raises its 2017 EPS estimate to $0.25 from $0.10 and introduces a 2018 estimates EPS of $0.90 on expected higher frac sand volumes and higher contribution margins in the proppant solutions segment due to improved fixed cost absorption.
- RBC assumes frac sand vols rise 30% Y/Y in 2018, with proppant solutions' contribution margin of 28%.