Goldman Sachs: Pressure Pumping Opportunity Gives Liberty Oilfield Upside Potential

Liberty Oilfield Services Inc LBRT offers an attractive investment opportunity, as it is the most profitable company in its business segment, according to Goldman Sachs. 

The Analyst

Analyst Waqar Syed initiated coverage of Liberty Oilfield shares with a Buy and a $34 12-month price target. The price target represents 63-percent upside from current levels.

The Thesis

Liberty Oilfield is a pure play pressure pumper, with pressure pumping being Goldman's favorite asset class, Syed said in a Tuesday note.

Goldman estimates 37-percent and 17-percent demand growth in the sector in 2018 and 2019, respectively. That translates to an undersupplied pressure pump market through mid-2018 and over 90-percent utilization through the end of 2020, Syed said. 

With Liberty increasing the number of its pressure pumping fleets from six in 2016 to 19, Syed said he forecasts increases to 22 by the second quarter and 27 by the fourth quarter of 2019. This could help expand EBITDA from $226 million in 2017 to $532 million in 2018 and $620 million in 2019, the analyst said. 

Liberty generated $21.7 million in annualized EBITDA in the third quarter of 2017, the highest in the peer group and about 41 percent above the average peer group.

Given the company's shares trade at a discount to the peer group, Syed said it possesses the potential to re-rate.

"LBRT's superior profitability is repeatable and sustainable in our view." 

The Price Action

Since its Jan. 11 IPO, Liberty Oilfield shares have lost about 3 percent.

Shares were rallying 3.56 percent to $21.24 at the time of publication. 

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