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C&J Energy Services, Inc. Message Board

  • mazzajohn mazzajohn Mar 27, 2012 10:24 AM Flag

    Citi analyst report

    16 February 2012 │ 14 pages
    C&J Energy Services Inc. (CJES)
    Reiterate Buy on Net Positive Result vs. Net Negative Market
     Inline Quarter Is a Net Positive — An inline quarter is a good quarter for CJES.
    CJES delivered a respectable performance despite the market's misperception that the
    domestic pressure pumping business is falling off a cliff. In our opinion, CJES provided
    little if any confirming evidence of that view. In contrast to the cautious margin
    commentary voiced on the HAL and BHI earnings calls earlier in the quarter, CJES
    displayed its usual supply chain and materials cost management and recorded a 6%
    q/q increase in EBITDA. We are tweaking our estimates only slightly to reflect the
    recently announced Fleet 9 build and likely margin pressures as the fracturing market
    becomes more balanced. We reiterate our Buy rating and $28 price target on CJES.
     Tweaking Estimates — We have increased our 2012 EPS estimate (by $0.15) to
    $4.50 in 2012 and decreased our 2013 EPS estimate (by $0.20) to $4.50. We have
    introduced a 2014 EPS estimate of $3.90. We model revenues as a function of
    fracturing horsepower and monthly revenues per horsepower unit, and the addition of a
    ninth fleet for deployment in late 2012 provided some upside to our 2012 estimate. We
    have assumed EBITDA margins decline from 37.6% in 2011 to a more normalized midto
    high-twenties range in 2013 and 2014.
     Fleet Could Double in Three Years — We estimate that adding three fleets per year
    allocated to international operations after 2012 would result in EPS growth of 10%+ per
    annum. However, our model has conservatively assumed that CJES caps its expansion
    at the current nine planned frac fleets. Still, management is contemplating the addition
    of at least nine more fleets in international regions (e.g., the Middle East) over the next
    three years. Although we have yet to model in any incremental fleets beyond 2012, our
    forecasted ~$230M of free cash flow in 2013 and 2014 would more than allow the
    funding of such a capital investment. Also, the newly completed Total manufacturing
    facility would facilitate building the fleets in a cost-effective manner.
     Valuation Remains Depressed — CJES trades at an EV/EBITDA multiple of 2.4x vs.
    the 3.3x peer median on 2012 EBITDA estimates and 2.4x vs. the 2.9x peer median on
    2013 EBITDA projections. We believe the historically low multiples for the group
    overstate the risks of fleet over-building and natural gas pricing pressures. The
    company also remains either an acquirer or target in a consolidating market niche.
    Equities
    EPS Q1 Q2 Q3 Q4 FY FC Cons
    2011A 0.60A 0.78A 0.89A 1.00A 3.29A 3.29A
    2012E 1.00E 1.09E 1.19E 1.22E 4.50E 4.14E
    Previous na na na na 4.35E na
    2013E na na na na 4.50E 4.70E
    Previous na na na na 4.70E na
    2014E na na na na 3.90E na
    Previous na na na na 4.00E na
    Source: Company Reports and dataCentral, CIR. FC Cons: First Call Consensus.
    Buy 1
    Price (16 Feb 12) US$20.16
    Target price US$28.00
    Expected share price return 38.9%
    Expected dividend yield 0.0%
    Expected total return 38.9%
    Market Cap US$1,046M
    Price Performance
    (RIC: CJES.N, BB: CJES US)
    See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Mazza..this "jerk" has stated often that I am long. I am also a realist and as long as NG is hovering 2 then most O & G stocks will be lagers to the overall market. Since I do not expect NG to rise much over the next couple of years, I now believe CJES among others will be hard pressed to move up. I also believe that estimates will be lowered which will be a huge headwind. Sure, the stock may go up short term on some rumor or a news release, but it will be short lived and I will then sell my shares. Is 20 a high possibility for a day or two? Of course. If I thought that CJES wouls simply sit at 18-18-50, I would sell and take my loss. But since most stocks are quite overvalued at the moment, I will hold since there is nothing I want to buy at the moment. I am in the same boat with SD, CRZO and IO. Only BOLT seems to move but that is a small company with a very small float but it now at least pays a small dividend and there has been inside buying by management. Is CJES management buying? I have not seen any filings to support any insiders buying.

    • An analyst opinion is supposed to be unbiased. Instead of just posting meaningless speculation I thought I would focus on the facts. If you think his analysis is no good then why don't you do your own ? If you're short I have no problem with that but back it up with facts. In fact this short play is getting pretty old if you don't have any fundamental reason for the stock going lower. Seems to me the stock is dirt cheap now and already factors in very low earnings. I wouldn't be short unless I thought they were going to make less than $2.50 this year or the CEO was smoking crack.

    • C&J Energy Services Inc. (CJES)
      16 February 2012
      3 Citigroup Global Markets
       Updating Fleet Status - CJES recently announced that it would expand from
      eight to nine fleets by the end of 2012. The company also completed the
      deployment of 16,000 hp of Fleet 6A (vertical completions) in December and
      32,000 hp of Fleet 6B (horizontal completions) in February. Fleet 7 appears
      very close to a contract in the Permian. Fleet 8 has received interest in the
      Permian, Eagle Ford, and Granite Wash. The Granite Wash and Bakken are the
      most likely basins of operation for Fleet 9. All of its six currently contracted
      fleets are operating in oily or liquids-rich basins.
       Fleet Rollovers Likely - CJES has contracts on Fleets 1-2 expiring in mid-2012.
      The company expects that pricing will remain flat relative to the contracted rates,
      which have recently increased for both fleets. The customers would notify CJES
      of their intentions to renew the contracts within 60 days of expiration. CJES
      believes at least one of the customers will do so.
      Figure 1. C&J Energy Services: Fracturing Fleet Status
      Fleet #
      Actual /
      Expected
      Deployment Basin Operator
      Estimated
      Contract
      Expiration
      # of
      Pressure
      Pumps
      Capacity
      (HHP)
      Capex
      Spent
      Capex
      Forward
      Capex
      Total
      1 Late 2007 Granite Wash Penn Virginia Jun-12 17 34,000
      2 Jul-10 Eagle Ford EOG Resources Jul-12 12 24,000
      3 Jan-11 Eagle Ford Anadarko Jan-13 16 32,000
      4 Apr-11 Eagle Ford EXCO Resources Mar-14 20 40,000
      5 Aug-11 Eagle Ford Plains Exploration Aug-13 16 32,000
      6 Dec-11 Permian Apache Dec-13 22 48,000
      Current Capacity 103 210,000
      7 Apr-12 Permian N/A N/A 16 32,000 $18.2 $7.8 $26.0
      8 3Q12TBD N/A N/A 16 32,000 $1.2 $27.8 $29.0
      9 4Q12TBD N/A N/A 16 32,000 $1.6 $28.4 $30.0
      Planned New Capacity 48 96,000 $21.0 $64.0 $85.0
      Total Capacity at Year-End 2012 151 306,000
      Source: Company Reports, Citi Investment Research and Analysis
       Inline Quarter - CJES reported 4Q11 EPS of $1.00 vs. our $0.94 estimate and
      the $0.91 consensus estimate, although $0.07 per share was attributed to
      beneficial tax deductions. The quarter was inline based on operating earnings,
      as adjusted EBITDA increased q/q from $81M to $86M, which was only slightly
      lower than our $87M estimate and slightly better than the $83M consensus
      estimate. The company made up for lower revenues with better margins in the
      quarter. The services/sand-and-fluids fracturing revenue mix -- high-margin
      services vs. low-margin sand-and-fluids -- improved from 40%/60% in 3Q11 to
      50%/50% in 4Q11 and is expected to remain at the same level in 1Q12.
       Better Margins Offset Revenue Shortfall - Revenues declined by 4%
      sequentially to $220M, falling short of our $255M estimate, but the company
      more than made up for this on margin. Adjusted EBITDA margins increased
      sequentially by 380 bps to 39.2%. Monthly revenues per unit of horsepower
      declined by 16% from $407 in 3Q11 to $343 in 4Q11. The decline was driven by
      a customer providing its own sand to execute fracturing jobs in November and
      December and two customers pumping fewer than the contractually guaranteed
      number of monthly hours primarily due to well delays. We expect monthly
      revenues per unit of horsepower to decline by another 7% sequentially to $320
      in 1Q12.
       Customers Cutting Back on Guar - CJES has seen its monthly guar or gel
      usage per fleet decline over the past year. For example, customers have
      elected to reduce the use of guar by performing hybrid slickwater frac fluids
      rather than cross-linked gels. CJES used 350,000-4000,000 gallons of guar or

      • 1 Reply to mazzajohn
      • C&J Energy Services Inc. (CJES)
        16 February 2012
        4 Citigroup Global Markets
        gel per month a year ago and 325,000-350,000 gallons currently despite at least
        a doubling of its horsepower over that time. We believe this has resulted in the
        mix shift favoring services, which tend to carry higher margins than sand or gel.
         Supply Chain Is Humming Along - CJES experienced no supply or delivery
        interruptions of raw materials, and none of its raw materials faced significant
        price increases except for guar, which was expected. Although raw material
        costs are typically passed onto customers, the company's R&D is developing an
        environmentally "greener" guar substitute that would significantly reduce fluid
        costs incurred by its customers. These improvements are indicative of the
        company's success in managing its supply chain logistics and getting
        unnecessary costs out of the system.
         Coiled Tubing Still Robust - Coiled tubing revenues grew by 25% sequentially
        to $32M in 4Q11 and have doubled year-over-year. The company plans to
        increase its CTUs by 33% from 18 at the end of 2011 to 24 at the end of 2012.
        Revenue per job increased sequentially by 29% due to an improved job mix and
        better pricing.
         Manufacturing Facility Completed - Equipment manufacturing revenues
        increased by 75% sequentially to $11M. The company completed its 36,000
        square foot plant adjacent to Total's existing facility.
        Valuation
        CJES trades at an EV/EBITDA multiple of 2.4x vs. the 3.3x peer median on 2012
        EBITDA estimates and 2.4x vs. the 2.9x peer median on 2013 EBITDA projections.
        We believe the historically low multiples for the group overstate the risks of
        fracturing fleet over-building and natural gas pricing pressures.
        Figure 2. C&J Energy Services: Comparable Companies Analysis
        2/16/2012 % Ch % Ch P/E EV/EBITDA EBITDA Margin
        Company Ticker MCap $M Price YTD LTM 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E
        RPC Inc. RES $2,269 $15.30 -16% -13% 7.1 x 7.3 x 7.6 x 3.6 x 3.4 x 3.3 x 37.1% 34.2% 34.1%
        Trican Well Service TCW-t 2,259 15.38 -11% -34% 6.8 x 6.0 x 5.7 x 3.6 x 3.0 x 2.8 x 27.1% 26.4% 26.1%
        Calfrac Well Services CFW-t 1,132 25.90 -7% -25% 6.5 x 5.4 x 5.2 x 3.4 x 2.9 x 2.6 x 26.5% 25.3% 25.1%
        Basic Energy Services BAS 815 19.17 -3% 3% 10.0 x 7.5 x 6.5 x 4.5 x 3.7 x 3.4 x 26.8% 27.8% 27.9%
        Canyon Services Group FRC-t 721 11.81 1% -2% 8.1 x 5.8 x NA 4.9 x 3.5 x 3.0 x 41.9% 40.4% 40.0%
        Peer Median -5% -14% 7.5 x 5.9 x 5.7 x 4.1 x 3.3 x 2.9 x 27.0% 27.1% 27.0%
        C&J Energy Services CJES $1,046 $20.16 -4% NA 6.1 x 4.5 x 4.5 x 3.5 x 2.4 x 2.4 x 37.6% 35.2% 29.3%
        Premium/(Discount) to Peer Median -18% -24% -21% -14% -26% -17%

    • C&J Energy Services Inc. (CJES)
      16 February 2012
      2 Citigroup Global Markets
      Fiscal year end 31-Dec
      2010
      2011
      2012E
      2013E
      2014E
      Valuation Ratios
      P/E adjusted (x) 29.9 6.1 4.5 4.5 5.2
      EV/EBITDA adjusted (x) 13.5 3.7 2.3 2.0 1.6
      P/BV (x) 8.8 2.6 1.6 1.2 1.0
      Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
      Per Share Data (US$)
      EPS adjusted 0.67 3.29 4.50 4.50 3.90
      EPS reported 0.67 3.19 4.50 4.50 3.90
      BVPS 2.29 7.81 12.26 16.90 20.92
      DPS 0.00 0.00 0.00 0.00 0.00
      Profit & Loss (US$m)
      Net sales 244 758 1,179 1,415 1,415
      Operating expenses -172 -496 -804 -1,040 -1,089
      EBIT 72 262 376 374 326
      Net interest expense -17 -12 1 2 0
      Non-operating/exceptionals -2 0 0 0 0
      Pre-tax profit 53 250 376 376 326
      Tax -20 -88 -136 -136 -117
      Extraord./Min.Int./Pref.div. 0 0 0 0 0
      Reported net income 32 162 241 241 209
      Adjusted earnings 32 167 241 241 209
      Adjusted EBITDA 83 285 415 415 367
      Growth Rates (%)
      Sales 264.3 210.6 55.5 19.9 0.0
      EBIT adjusted nm 273.0 43.3 -0.4 -12.9
      EBITDA adjusted 531.4 245.1 45.4 0.1 -11.6
      EPS adjusted nm 387.3 36.9 0.0 -13.4
      Cash Flow (US$m)
      Operating cash flow 45 169 227 254 251
      Depreciation/amortization 11 23 39 41 41
      Net working capital -21 -73 -53 -28 1
      Investing cash flow -44 -166 -160 -20 -22
      Capital expenditure -44 -141 -160 -20 -22
      Acquisitions/disposals 1 -25 0 0 0
      Financing cash flow 1 38 0 0 0
      Borrowings 4 -72 0 0 0
      Dividends paid 0 0 0 0 0
      Change in cash 2 42 67 234 229
      Balance Sheet (US$m)
      Total assets 226 538 828 1,104 1,319
      Cash & cash equivalent 3 47 114 348 577
      Accounts receivable 44 122 190 228 228
      Net fixed assets 88 214 335 314 295
      Total liabilities 117 143 192 227 233
      Accounts payable 13 58 94 123 129
      Total Debt 72 0 0 0 0
      Shareholders' funds 109 395 636 877 1,086
      Profitability/Solvency Ratios (%)
      EBITDA margin adjusted 33.8 37.6 35.2 29.3 25.9
      ROE adjusted 36.8 66.2 46.7 31.9 21.3
      ROIC adjusted 30.5 57.6 48.1 40.5 35.8
      Net debt to equity 63.2 -11.8 -17.8 -39.6 -53.1
      Total debt to capital 39.7 0.0 0.0 0.0 0.0
      For further data queries on Citi's full coverage universe
      please contact CIRA Data Services Americas at
      CIRADataServicesAmericas@citi.com or +1-212-816-
      5336

 
CJES
27.95-0.23(-0.82%)Aug 22 4:01 PMEDT

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