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Bull of the Day: Nine Energy Service, Inc. (NINE)

Brian Hamilton
Bull of the Day: Nine Energy Service, Inc. (NINE)
Bull of the Day: Nine Energy Service, Inc. (NINE)

Nine Energy Service, Inc. (NINE), a Zacks Rank #1 (Strong Buy) provides onshore completion and production services to unconventional oil and gas resource development. The Company's operating segment consists of Completion Solutions and Production Solutions. Completion Solutions segment provides services integral to the completion of unconventional wells. Production Solutions segment provides production enhancement and well work over services. It also offers auxiliary services including casing jacks with hydraulic power source and oil field equipment hauling.

Recent Earnings Results

The company reported Q4 results in late March where revenues came in at $154.3 million, a +93% increase from its Q4 16 revenues of $80 million.  Further, Q4 adjusted EBITDA improved by +258% when compared to the year ago quarter, and was the fourth sequential quarterly increase for the company.  

On a segment basis, Completion Solutions (cementing, wireline, coiled tubing, and completion tools) saw revenues improve by +108% from $64.7 million to $134.7 million.  Also adjusted growth profits jumped up by +153% when compared to the year ago quarter.  Production Solutions (well services) posted YoY revenue gain of +28%, and adjusted gross profit growth of +23%.  

Drivers Going Forward

Since April of 2017, producers have added 161 new active oil and gas rigs in the U.S., and the trend has continued to move upwards over the past several weeks.  The big driver behind the uptick in rigs is mostly due to oil prices being over $60 per barrel.  At these levels it is profitable for U.S. companies to continue to activate more and more rigs.  Further, the Energy Information Administration recently increased its 2019 U.S. oil production estimates to just above 11 million barrels per day; the largest amount since the EIA has been estimating production levels since it began in 1983.  This indicates the continued need for service companies for the foreseeable future.  

Management’s Take

According to Ann Fox, President and CEO, “We realized tremendous growth in 2017 by remaining focused on providing our customers with excellent service execution and cutting-edge technology. Despite a decrease in U.S. rig count quarter-over-quarter, we were able to grow revenue and adjusted EBITDA for the fourth sequential quarter in a row, beating the midpoint of our adjusted EBITDA expectations by approximately 19%. Working for the most efficient customers and completing the most complex and technical wells enables us to differentiate ourselves in the market from a technology and tool conveyance perspective. We benefit directly from the secular trends in the completions space and we anticipate the high-level of completion intensity to continue as lateral lengths extend helping to drive top-line growth and margin, while also creating unique operating efficiencies within Nine. These efficiencies will provide a competitive advantage as labor and equipment remains extremely tight.

Price Return Performance

The graph below shows NINE’s performance compared to the Zacks Oil & Gas Field Services Market since the beginning of the year.

Increasing Earnings Estimates

Over the past 30 days, earnings estimates for Q1 18, Q2 18, FY 18 and FY 19 have all seen positive revisions; Q1 18 improved from -$0.16 to $0.14, Q2 18 rose from $0.20 to $0.37, FY 18 was lifted from $1.21 to $1.62, and FY 19 increased from $3.06 to $3.51.

Bottom Line

As oil prices remain above $60 a barrel it is profitable for shale and conventional producers to pump as much oil as they can.  This is great news for service companies like Nine Energy Service.  Further, the expected increased production through 2019 is a long term growth driver for the company.

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