Barclays Initiates Fairmount Santrol At Equal Weight, Likes Northern White Sand Exposure

Barclays started coverage of Fairmount Santrol Holdings Inc FMSA with an Equal-Weight rating and $9 price target saying it's well positioned in Northern White sand, having optimized costs by consolidating to its lowest-cost Wedron facility.

"FMSA has staved off near-term liquidity concerns, but its elevated leverage, while offering higher beta in a recovery, hamstrings flexibility and may require additional equity ahead of 2019 maturities," analyst William Thompson wrote in a note.

The analyst believes Fairmount Santrol's exposure to premium proppants will eventually recoup lost share, providing a margin tailwind. But, this would happen only later in the cycle.

Among the risk factors, Thompson highlighted that the company may need additional equity to fund a portion of its $1 billion of term loan maturities in 2019. Fairmount also has purchase commitments for 1,900 railcars that it may not be able to cancel or finance through leases.

On the valuation front, the analyst said his $9 DCF-based price target assumes a 9x terminal multiple, backstopped by about 6x EV/EBITDA on his 2019 EBITDA estimate.

At time of writing, shares of Fairmount were up 0.65 percent to $7.79.