Yahoo Finance Why Liberty Energy (LBRT) is a Go-to Stock in the Energy Space
Liberty Energy LBRT — a premier provider of hydraulic fracturing and other auxiliary services to onshore exploration and production (E&P) companies in North America — offers an opportunity for investors interested in the energy sector. The company also has strong earnings trends to back up its future performance.
Previously known as Liberty Oilfield Services, this Denver, CO-based independent, pure-play company operates in the Permian Basin, the Eagle Ford Shale, the Denver-Julesburg (“DJ”) Basin, the Williston Basin, the San Juan Basin, the Powder River Basin, the Haynesville Shale, the Oklahoma Scoop and Stack areas, the Marcellus Shale, Utica Shale, and the Western Canadian Sedimentary Basins.
Let’s discuss the reasons that make Liberty Energy an attractive pick:
Macro Tailwinds
Even as fears related to high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, it has remained the best S&P 500 sector over the past year. The space has generated a total return of around 4.1% in the trailing 12 months compared with the S&P 500’s decline of 12.7%. Apart from a relatively constructive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March 2022, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
Agreed, oil has pulled back from those lofty levels, However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no signs of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC sticking to a conservative production profile.
Solid Rank and VGM Score
Liberty Energy is a Zacks Rank #2 (Buy) stock in the Oil and Gas - Field Services industry, which carries a Zacks Industry Rank #53 — placing it in the top 21% of 250 Zacks industries. In addition to the favorable rank, LBRT enjoys a Value as well as a Growth Score of A, helping it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Q4 Earnings Breeze Past Estimates
LBRT posted excellent Q4 results on Jan 26, with EPS of 82 cents handily beating the Zacks Consensus Estimate of 71 cents and turning around from the year-earlier loss of 31 cents. The firm’s outperformance reflects the impact of strong execution and increased service pricing, which more than offset weather and holiday-related effects. Total revenues came in at $1.2 billion, which surpassed the Zacks Consensus Estimate by 2.6% and were 79.2% higher than the year-ago level of $683.7 million.
Current Levels Are a Buying Opportunity
After LBRT shares bottomed out (around $2.20) during the start of the pandemic, they have turned it around in style. Liberty Energy peaked in April last year at over $20 but has fallen to around $12 since then. At $12.04 per share, LBRT stock trades 45% below its average Zacks price target and still sits around 40% beneath its 2022 peaks. The recent pullback, coupled with its attractive earnings outlook, indicates that investors should take advantage of the discounted levels and start looking at the name to see if it’s right for their portfolio. With the company still experiencing good market conditions, we believe that LBRT stock is ripe for the picking.
Analyst Estimates Raised
Estimates for LBRT’s earnings have also trended in the right direction over the past 60 days, as analysts have consistently taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Liberty Energy’s 2023 bottom line has increased from a profit of $3.21 to a profit of $3.42 during this timeframe, while the next year’s projection marks a rise from a profit of $3.45 per share to $3.79.
Fundamental Strength
Liberty Energy offers hydraulic fracturing services to onshore upstream energy companies across multiple basins in North America. With technological progress in shale oil production, increased rig efficiencies and higher well complexity, drillers of oil and gas wells require extensive solutions for mapping underground reservoirs. This translates into an ever-expanding domain of work for oilfield service companies like LBRT.
The company already had a strong position in the oilfield service space, which has been further complemented by the OneStim acquisition. Apart from revenues and cost synergies, the transaction broadened Liberty’s geographic footprint by putting it into Haynesville, Mid-Continent, and Canada. Further, the company added Schlumberger’s Permian frac sand business and pump down perforating wireline operations in the Marcellus and Utica.
Bottom Line
Given this backdrop, it should be prudent to consider buying shares of Liberty Energy. Agreed, there are some apprehensions with the prevailing inflationary pressure and the flight from risky assets like energy in lieu of the banking turmoil. But with crude demand set to remain robust and eventually surpass the pre-COVID record, most of the domestic fracking capacity is on the verge of being exhausted. In this context, Liberty management sees elevated demand for its reactivated fleet that supports clients’ long-term development plans. All these suggest strong long-term cash flows that should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Liberty Energy, investors interested in the energy sector might look at operators like NOW Inc. DNOW, CVR Energy CVI and Sunoco LP SUN, each carrying a Zacks Rank #1 (Strong Buy) currently.
You can see the complete list of today’s Zacks #1 Rank stocks here.
NOW Inc.: DNOW beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. NOW has a trailing four-quarter earnings surprise of 41.3%, on average.
DNOW is valued at around $1.2 billion. NOW has seen its shares decline 3.2% in a year.
CVR Energy: CVR Energy is valued at some $3.1 billion. The Zacks Consensus Estimate for CVR’s 2023 earnings has been revised 23.2% upward over the past 30 days.
CVR Energy, headquartered in Sugar Land, TX, beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. CVI shares have gained 40.9% in a year.
Sunoco LP: SUN beat the Zacks Consensus Estimate for earnings twice in the trailing four quarters. Sunoco has a trailing four-quarter earnings surprise of 21.6%, on average.
Sunoco is valued at around $4.3 billion. SUN has seen its shares increase 29.4% in a year.
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Liberty Energy Inc. (LBRT) : Free Stock Analysis Report
