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Ranger Energy Services: An Undervalued Micro-Cap Stock With Room To Grow

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Ranger Energy Services: An Undervalued Micro-Cap Stock With Room To Grow

Initiating coverage of Ranger Energy Services Inc (NYSE: RNGR), Wells Fargo believes the company represents an undervalued microcap growth story with a premium asset base tied to the long-term development of U.S. oil shale and forecasted demand growth for higher spec workover rigs.

The firm initiated coverage of Range Energy Services with an Outperform rating and a $18 price target.

Analyst Judson Bailey sees the company as a high-growth pure play on the high-spec workover rig market. Bailey expects the company's high spec workover rigs to more than double from second quarter 2017 to 143 rigs by 2017.

The estimated 143 workover rigs would give the company the third-largest fleet of high-spec workover rigs in the U.S. and the highest percentage of high-spec assets in its fleet relative to most peers like Key Energy Services, Inc. (NYSE: KEG), Basic Energy Services, Inc. (NASDAQ: BAS) and C&J Energy Services Inc (NYSE: CJ), the analyst added.

See also: Imperial Initiates Coverage Of Oil & Oilfield Services Companies

Wells Fargo believes Range Energy Services is well positioned for the secular shift toward higher spec workover rigs that is being driven by the growth in horizontal oil well completions and longer laterals. The firm forecasts demand for 500-600 additional high spec workover rigs in the U.S. by 2020.

Despite the constructive longer-term view for workover demand, the firm expects excess capacity and the fragmentation of the sector to limit price increases for the foreseeable future. Citing recent data, the firm said 550-600 high-spec workover rigs are currently active but high-spec supply could be as high as 1,000-1,100 rigs.

On valuation, Wells Fargo noted that the company's shares are undervalued relative to its peer group and were trading at a discount to both net asset value and replacement value.

Latest Ratings for RNGR

DateFirmActionFromTo
Mar 2019UpgradesMarket PerformOutperform
Mar 2019UpgradesEqual-WeightOverweight
Jan 2019DowngradesOverweightEqual-Weight

View More Analyst Ratings for RNGR
View the Latest Analyst Ratings

Posted-In: Judson Bailey Wells Fargo SecuritiesAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

 

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