Any way you look at it, the sledding for energy stock has been difficult this year. Today doesn’t look any better. Despite the best efforts of OPEC and Russia to cut their output, U.S. shale producers have continued to boost output, which has negated much of the cuts elsewhere. The positives for the industry though are noticeable since the big downturn in 2015, which culminated in per-barrel prices bottoming in the mid-$20s. In fact, some think that new U.S. efficiencies can support more activity domestically than most investors expect at $50 or even lower per barrel.
In a new Jefferies research report, the oilfield services team focuses on the pressure pumpers and the frac sand companies, as they feel they offer investors more cushion within the sector to a decline in the rig count, which they feel could number as much as 100 versus the current count of 782.
Jefferies has five stocks rated Buy with price targets that are 100% to 300% above current trading levels. While only suitable for very aggressive accounts, they could supply some big upside for patient, contrarian investors.
This smaller cap company has solid upside potential for more aggressive investors. Fairmount Santrol Holdings Inc. (NYSE: FMSA) provides sand-based proppant solutions for exploration and production companies to enhance the productivity of their oil and gas wells. The company operates in two segments.
The Proppant Solutions segment primarily provides sand-based proppants for use in hydraulic fracturing operations in the United States, Canada, Argentina, Mexico, China, Northern Europe, and the United Arab Emirates. The company’s products include northern white frac sand, API-spec brown sand and resin-coated proppants, as well as ceramic proppants; PowerProp product; and Propel SSP product that utilizes a polymer coating applied to a proppant substrate.
The Industrial & Recreational Products segment offers raw, coated and custom blended sands for use in building products, glass, turf and landscape and filtration industries, as well as for foundries primarily in North America. Fairmount Santrol also supplies proppants to oilfield service companies.
The Jefferies price target for the shares is a huge $8, though the Wall Street consensus target is even higher at $10.36. The stock closed Monday at $3.71 per share.
This is one of the top frac sand producers, and its stock was recently raised to Buy at Jefferies. Hi-Crush Partners L.P. (NYSE: HCLP) is an integrated producer, transporter, marketer and distributor of high-quality monocrystalline sand, a specialized mineral that is used as proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells.
Hi-Crush reserves, which are located in Wisconsin, consist of northern white sand, a resource that exists predominantly in Wisconsin and limited portions of the upper Midwest region of the United States. Hi-Crush owns and operates the largest distribution network in the Marcellus and Utica shales, and it has distribution capabilities throughout North America.
Jefferies has a $30 price target for the stock, and the consensus target is set much lower at $23.80. Shares closed most recently at $10.25 apiece.