Market Overview

Hi-Crush Partners Downgraded On Valuation, But Simmons & Co. Says Call Could Be Proven Wrong

Hi-Crush Partners Downgraded On Valuation, But Simmons & Co. Says Call Could Be Proven Wrong

With shares trading more than 20 percent higher since a distribution increase announcement in July, Hi-Crush Partners LP (NYSE: HCLP) was downgraded by Simmons & Co. on valuation concerns. 

The Analyst

Simmons & Co.'s John Watson downgraded Hi-Crush Partners from Overweight to Neutral with an unchanged $14 price target. Simmons is the energy specialty division of Piper Jaffray. 

The Thesis

Hi-Crush Partners, a provider of proppant and logistics solutions to the North American energy industry, benefited throughout the energy downturn from multiple impressive strategic decisions, Watson said:

  • Equity issuance with "impeccable timing."
  • The acquisition of an in-basin mine before its competitors.
  • Bringing mines online at an opportune time.
  • A focus on logistics.

While the company deserves credit, a downgrade from a bullish stance is warranted after a 22-percent gain in the stock since the distribution hike, the analyst said. (See Watson's track record here.) 

A downgrade could prove to be the wrong call if NWS sand demand doesn't fall as is expected in 2019 and 2020, Watson said. 

The analyst is modeling for a decline in the company's last-mile solutions profit into 2020, but Hi-Crush may be able to restructure contracts to eventually normalize profits to a degree, he said. 

If both of these favorable scenarios play out, the upside case for Hi-Crush Partners' stock would be materially higher, but for the time being the stock's strong run over the past few weeks can't be ignored, Watson said. 

Price Action

Hi-Crush shares were trading down 2.1 percent at $12.82 at the time of publication Tuesday. 

Related Links:

A New Frac Sand Giant Is Born Amid An Industry Shift

Hi-Crush Rises On Acquisition, Expansion, Financing Plans

Public domain photo by the U.S. Geogolical Survey via Wikimedia. 

Latest Ratings for HCLP

May 2019AltaCorp CapitalUpgradesUnderperformSector Perform
Jan 2019B. Riley FBRDowngradesBuyNeutral
Dec 2018Credit SuisseDowngradesNeutralUnderperform

View More Analyst Ratings for HCLP
View the Latest Analyst Ratings


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