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Keane: Strong Start To 2018 Despite Q1 Transitory Issues

Cornerstone Investments profile picture
Cornerstone Investments


  • Revenue and EBITDA in-line with previous management guidance.
  • Transitory issues from extreme cold weather resulted in Q1 results below normalized numbers, issues have dissipated by the end of Q1.
  • Expect growth to return during Q2, and forecast next quarter revenue of $555 million to $575 million and adjusted gross profit per fleet of $20 million at exit.
  • Reiterate our Buy rating after solid Q1 results and positive Q2 outlook.

We last wrote about Keane (FRAC) on March 7, 2018 and recommended it as our top pick for the U.S. pressure pumping sector. (Our top pick for Canada is Calfrac (OTCPK:CFWFF)). We have since been disappointed by the share price reaction so far, with share price range bound between $15 and $16. However, after the January selloff, the stock has stabilized around current levels despite a rally in oil prices to close to $70 per barrel. We think the industry-wide logistical issues in Q1 are transitory, and investors will eventually realize that Keane and other service stocks are still in for a multi-year bull market for the pressure pumping sector. Investor sentiment will improve if oil price can stabilize above $65, and we believe the market is overly paranoid by the risk of overbuilding. We think the announced newbuilds will be consumed by the growing demand of rising U.S. production and need for refurbishment. Keane is best positioned in the sector due to its strong balance sheet, diversified basin operations with Permian focus, three newbuilds entering service in 2018, and management focus on shareholder return through share buyback.

Keane, Pressure pumping, oil

Q1 2018 Deep Dive

Keane reported first-quarter revenue of $513 million, more than doubling from last year and up 2.3% from last quarter. The industry was plagued by logistical issues and had to cope with bad weather and the resulting delays. Although the market was already expecting a weak first quarter, Keane was able to pull it through and met expectations. The management said that excluding the transitory issues which dissipated as Q1 ended, revenue would have been $530 million, in-line with the initial management guidance. Keane was fully within the range management released with fourth-quarter results which showed the incredible handle of its business by the management.

(Cornerstone and Company Filings)

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Cornerstone Investments profile picture
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Analyst’s Disclosure: I am/we are long FRAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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