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Why Is ProPetro (PUMP) Up 29.1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for ProPetro Holding (PUMP). Shares have added about 29.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ProPetro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

ProPetro Misses on Q3 Earnings, Revenues Beat

ProPetro Holding reported third-quarter net income per share of 33 cents, missing the Zacks Consensus Estimate of 48 cents and below the year-ago period's bottom-line figure of 53 cents. The underperformance stems from tepid demand for the company’s services as clients – the upstream energy players – take a cautious approach to capital spending amid depressed oil and gas prices.   

ProPetro’s revenues of $541.8 million improved 24.8% year over year and came above the Zacks Consensus Estimate of $509 million, driven by impressive operating efficiency and contribution from Pioneer Natural Resources’ pressure pumping assets in the Permian Basin.

Adjusted EBITDA in the third quarter amounted to $131.9 million, increasing from $103.4 million a year ago.

Pressure Pumping Division

ProPetro, through its Pressure Pumping division, provides hydraulic fracturing, cementing and acidizing functions. The business accounted for 97.6% of the company's total revenues in the quarter under review.

Costs & Expenses

ProPetro reported cost of services of $396.9 million in third-quarter 2019, 24% higher than the year-ago quarter. Meanwhile, general and administrative expenses came in at $27.6 million, up from $12.8 million in the year-ago period.

Balance Sheet & Capital Expenditure

As of Sep 30, ProPetro had cash and cash equivalents of $109.2 million while its long-term debt was $130 million – for a negative net cash position. The company’s debt-to-capitalization ratio was 12.1%. ProPetro also has $64.3 million available under the revolving credit facility.Capital expenditure for the three months reached $87 million, up 17.3% compared to the third quarter of 2018. Payments toward the new-build DuraStim hydraulic fracturing fleets accounted for the rise in outlay.

Guidance & Electric Fracking Foray

ProPetro expects an average of 18-20 effective fleets in the fourth quarter, down from 25.1 in the third quarter of 2019. The fall in utilization is due to slowdown in customer spending, seasonality and a general lack of demand.   

Importantly, the company is making its foray in the electric fracking technology and plans to employ one such DuraStim fleet by late 2019/early 2020 and two more subsequently in 2020. The 36,000 horsepower DuraStim fleets – boasting of fuel efficiency and lower costs – will be deployed under dedicated agreements with existing clients.   

During the third quarter, ProPetro also added a unit to its cementing fleet, which brought the cementing fleet count to 23.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -26.57% due to these changes.

VGM Scores

Currently, ProPetro has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise ProPetro has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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