Oppenheimer Upgrades Flotek Industries To Perform, Highlights 'The Tipping Point'

In a report published Monday, Oppenheimer analyst James Schumm upgraded the rating on Flotek Industries Inc FTK from Underperform to Perform, while raising the price target from $8 to $17. With strong Q2 results, the analyst believes that the company has reached a "tipping point" where Flotex appears to have convinced operators of the value and efficacy of its CnF.

According to the Oppenheimer report, "A combination of factors accounted for the company's success in 2Q15 including its FracMax analytical software, its validation programs in the field, the Flotek Store and low oil prices."

Flotex believes that it has been able to create customer awareness regarding the efficacy and consumption of CnF, while the analyst believes that the demand could "have legs." In addition, with the launch of the Flotek Store, operators now have increased transparency into the pricing of CnF, as well as an alternative method of consuming the product.

The analyst expects the Flotek Store to lead to increased volumes being sold by operators, given the lower prices. "We think push-back from the pressure pumpers is less likely in this environment," Schumm stated.

"Most operators have wrung most or all of the possible cost savings out of the oil service firms and are now exploring new technologies to increase production and lower the cost per barrel of oil equivalent. We believe this trend is likely to benefit Flotek's CnF adoption," Schumm added.

However, the analyst also believes that the drilling technologies segment would remain weak in the near term, although the limited contribution of this segment was unlikely to meaningfully impact expectations.

The EPS estimates for 2015 and 2016 have been raised from ($0.12) and $0.25 to $0.13 and $0.55, respectively.