Credit Suisse Slashes Hi-Crush Partners' Price Target, Downgrades

In a report published Monday, analysts at Credit Suisse downgraded

from Outperform to Neutral. The price target was lowered from $60 to $35. "Higher frac and sand volumes, bottlenecks on logistics, and concerns about availability turned the market into a "gold rush" and drove the distribution up by more than 40% since the IPO (August 2012), increasing each of the past six quarters," the analyst said. However, distribution has been flat this quarter and the company intends to "at least maintain" this level of distribution through 2015. Credit Suisse believes that the frac sand market is unlikely to pick up meaningfully near term, "as we see an extended period of subdued drilling and completions activity in the face of a prolonged low oil price environment; in the long term, we see an industry that is being paid essentially for its logistics infrastructure rather than for the value delivered by the commodity itself." The analysts expressed their concerns regarding both the demand and the supply side of the frac sand market. While demand is expected to be weak, the permitting environment is likely to remain difficult. In addition, margins are expected to deteriorate and the plentiful availability of frac sand in the country means that there will be no dearth of supply. "HCLP continues to be the best sand company, in our opinion, but as the sector goes through a "commoditization" period of lower demand and easier infrastructure, we move to the sidelines," the analyst added.