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E is up 208% YoY, and is the second-best performing stock on our list of oilfield services companies. Gross margins are slightly higher than the sector average, while debt/capital is significantly lower
In 2024, we anticipate 13% revenue growth, outpacing the sector by 2 pp
Q3-2024 revenue was down 19% YoY (H1-2024: up 30% YoY), missing our estimate by 23%. Gross margins decreased 9 pp YoY, and were 2 pp lower than our estimate, primarily due to higher transportation costs for servicing projects in remote areas
G&A expenses were up 48% YoY, and 8% higher than our estimate, driven by new hires supporting expansion and business growth. EPS turned negative ($0.03 to -$0.001) vs our forecast of $0.01. Debt/capital remained relatively flat QoQ
In 2024 (9M), CAPEX increased 27% YoY to $12M, driven by heightened client demand necessitating new equipment purchases. Can raise up to $5.5M from in-the-money options and warrants
Consensus oil price forecasts (near and long-term) are well above historic averages, implying a positive outlook for the oilfield services sector. E's revenue generally tracks changes in oil and gas prices, and sector CAPEX spending
Historically, a 1% increase in oil and gas prices, and CAPEX spending, has led to a 2.4% increase in E's revenue. Conversely, a 1% decrease in these factors has resulted in a 1.2% decline in E’s revenue
As Q3 revenue and gross margins were lower than expected, we are lowering our 2024 and 2025 estimates
However, given the multiple recent contracts with tier-one clients, we are raising our long-term revenue forecasts, while lowering our discount rate assumption (from 12.5% to 10.0%), reflecting reduced risk in retaining existing clients, consistently attracting new ones, and increased outlook for energy from the new incoming administration in the U.S.
As a result, our DCF valuation increased from $2.62 to $3.89/share
Sector multiples are up 23% since our previous report in August 2024. E’s forward EV/Revenue and EV/EBITDA are 33% (previously 22%) higher than sector averages
We believe E’s premium is justified, given its higher margins, lower debt/capital, and higher 2024 revenue growth estimate
As a result of our revised DCF valuation and updated sector multiples, our fair value estimate increased from $1.90 to $2.75/share
We are maintaining our BUY rating, and raising our fair value estimate from $1.90 to $2.75/share (the average of our DCF and comparables valuations). While Q3 results were disappointing, we anticipate a rebound in Q4 as clients resume operations following earlier delays. The re-election of Trump is unlikely to directly benefit Enterprise, however, we expect positive investor sentiment for the broader North American energy services sector. Our long-term outlook remains positive, supported by the company’s ability to retain existing clients, and consistently attract new ones.
We believe the company is exposed to the following key risks (not exhaustive):
We are maintaining our risk rating of 3 (Average)
