Barclays Initiates US Silica At Overweight Citing Positioning With Early Stage Oil Complex Recovery

With the end of the O&G downturn in North America in sight, frac sand would likely be among the first in the oilfield supply chain to tighten in the recovery, Barclays’ William Thompson said in a report. The analyst initiated coverage of U.S. Silica Holdings Inc SLCA with an Overweight rating and a price target of $50, saying that the company was well positioned for the first stage of the recovery.

Strong Positioning

US Silica is a high quality company, having notable “scale of low-cost supplies supported by extensive logistics.” Analyst Thompson added that the industry seemed ready for consolidation and US Silica was “the natural consolidator,” given its robust balance sheet.

By pursue accretive M&A, US Silica would be able to enhance “an already balanced portfolio of low-cost complementary assets” and increase its market share, Thompson commented.

Over the past month, US Silica has announced two acquisitions for a total of almost $430 million in cash and equity. One acquisition added 2 million tons of regional Brown sand capacity, with EPS accretion of $0.20-$0.30, while the other added “a unique frac sand logistic company with a proprietary cost efficient last-mile delivery system,” with EPS accretion of another $0.20-$0.30.

Diversifying into regional Brown sand would allow US Silica to benefit from a “continued shift to enhanced, high-density completions in the Permian,” the analyst commented.

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