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Seaport Downgrades Flotek After Worst-Case Q2

Hannah Genig

Everything that could have gone wrong for oilfield services company Flotek Industries Inc. (NYSE: FTK) did so in the second quarter, according to Seaport Global. 

The Analysts

Seaport Global analyst Mike Urban downgraded Flotek from Buy to Neutral.

The Thesis

Flotek's Q2 earnings fell short on both revenue and margins, and the company notably lost its largest customer, Urban said in a Wednesday downgrade note.

The company’s channels to U.S. markets are deteriorating, resulting in a 25-percent increase in net debt, the analyst said. 

Despite management’s announcement of the largest CnF order in company history, revenue continues to fall well below estimates, Urban said.

Urban considers the quarter to be a big miss and outlined what he sees as risks for Flotek in the note:

  • Demand for Flotek’s products is largely reliant on oil and natural gas expenditures, and the recent decline in these expenditures will likely halt growth and concern investors.
  • Government regulations surrounding the production of resources could impair demand for Flotek’s services.

“Certain anti-takeover provisions in FTK’s charter documents and applicable Delaware law could discourage or prevent others from acquiring the company, adversely impacting its share price,” Urban said.

“Certain provisions include the ability to issue up to 100,000 shares of preferred stock, prohibit shareholders from calling special meetings, limit the ability of shareholders to act by written consent, prohibit cumulative voting and require advance notice for stockholder proposals and nominations for election to the board of directors to be acted upon at meetings of stockholders.”

Price Action

Flotek shares were plunging 24.31 percent to $2.20 at the time of publication Wednesday. 

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Latest Ratings for FTK

Date Firm Action From To
Aug 2018 Seaport Global Downgrades Buy Neutral
Jan 2016 Seaport Global Upgrades Accumulate Strong Buy
Dec 2015 KLR Group Initiates Coverage on Buy

View More Analyst Ratings for FTK
View the Latest Analyst Ratings

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