Credit Suisse Calls C&J Energy A 'Bull Market Stock,' Initiates At Neutral

• Shares of C&J Energy Services, Ltd. CJES have declined 68.01 percent over the past six months, from the high of $13.60 on June 19.
• James Wicklund of Credit Suisse has initiated coverage of the company with a Neutral rating and price target of $5.50.
• Wicklund expressed concern regarding the company’s EBITDA generation ability in 2016, its debt covenants and market over-capacity, which was expected to persist into or even through 2017.

According to the Credit Suisse report, C&J Energy bought the completion and production services business from Nabors Industries Ltd. NBR for $688 million in cash and 62.5 million shares in March 2015. This gave Nabors a 53 percent stake in the company.

Analyst James Wicklund stated that the debt that was a result of this deal was one of the reasons for concern regarding C&J Energy’s 2016 EBITDA.

“Pressure pumping has been one of the most negatively affected segments of the OFS market with price concessions, low utilization, aggressive competition and low oil prices reducing margins into negative territory for the industry,” the report mentioned.

Although some improvement is expected in activity in 2017, Wicklund does not expect much pricing improvement at least for the next six quarters, along with little improvement in the overall market conditions to the next six months, at least.

Given the company’s debt-to-cap ration of 54 percent and almost 100 percent exposure to the U.S. spot market, Wicklund mentioned that “C&J is the epitome of OFS beta leverage both operationally and financially.”

“It is a bull market stock that remains of interest while we skate across the bathtub of the current oil/gas price and activity, while looking for a recovery in both,” Wicklund added.