6 Reasons Why Goldman Sachs Turned Neutral On U.S. Silica Holdings

Investors should consider adding exposure to the Deepwater/LNG space and simultaneously reduce exposure to the frac and sand space, including U.S. Silica Holdings Inc SLCA, according to Goldman Sachs.

The Analyst

Goldman Sachs' Waqar Syed downgraded U.S. Silica from Buy to Neutral with a price target lowered from $37 to $31.50.

The Thesis

The Deepwater/LNG space appears to be "inflecting off the bottom," while at the same time the frac and sand space is seeing peak margins, Syed said in the downgrade note. Looking forward, the frac and sand space as a whole are likely to see margins fall on a structural basis as new capacity starts up over the next year, the analyst said. (See Syed's track record here.)

The analyst gave six reasons for dropping his previously bullish stance on U.S. Silica:

• Superior positive catalysts and improving macro headwinds can be found elsewhere in the oil service space.
• Northern White frac sand prices likely peaked in the near-term, which adds pressure to the company's oil and gas segment.
• Heightened competition for the Sandbox business.
• An absence of any meaningful M&A catalysts.
• Near-term cost pressures in the Permian sand mines due to a tight labor situation.
• A less favorable outlook implies the potential for multiple compression in the stock.

Price Action

Shares of SLCA were down by 0.58 percent at $27.36 at the close Thursday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For April 12, 2018

28 Stocks Moving In Thursday's Pre-Market

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