On Friday, Citi issued a downgrade for Liberty Oilfield Services (NYSE:LBRT), shifting the stock's rating from Buy to Neutral and adjusting the price target downward from $25.00 to $19.00. The firm observed that after approximately 18 months of outperforming its competitors, Liberty Oilfield Services is now facing a tougher market environment.
The company is in the process of idling two fleets, and is conceding to pricing pressures that are in turn squeezing margins.
Citi analysts have revised their fourth-quarter EBITDA estimate for the company by 22%, bringing it down to $172 million, with an adjusted figure of $179 million. They anticipate a seasonal uptick in the first half of 2025 but remain cautious due to the expectation that exploration and production companies will likely seek further pricing concessions amidst uncertainties surrounding oil prices.
The firm's outlook for Liberty Oilfield Services in 2025 is also less optimistic, with EBITDA projections being cut by more than 20% to $793 million, or $821 million when adjusted. The report notes that while the company plans to reduce capital expenditures, the reductions are not expected to be significant. Citi's model predicts a capital expenditure of approximately $550 million for the next year.
With EBITDA declining more rapidly than capital expenditures, the forecast for 2025 free cash flow is now approximately $180 million, which translates to a yield of around 6% based on the current share price. The report also indicates potential challenges for the company in terms of cash flow in the fourth quarter and higher capital expenditures, estimated at around $200 million.
These factors, combined with seasonal working capital challenges in the first quarter, suggest that Liberty Oilfield Services may have limited capacity for stock buybacks in the near term without leveraging its balance sheet. Consequently, Citi has reduced its target price for the company's shares to $19 and has downgraded the stock to a Neutral stance.
In other recent news, Liberty Energy reported a robust third quarter for 2024, with revenues hitting $1.1 billion and an adjusted EBITDA of $248 million. The company's operational efficiency reached an all-time high, largely due to an increase in pumping hours. However, the company expects a low-double-digit percentage reduction in Q4 activity due to market pressures. On the brighter side, Liberty Energy increased its quarterly cash dividend by 14% to $0.08 per share and spent $39 million on share repurchases.
Liberty Energy's executives have expressed optimism about the future, anticipating increased completions activity and healthy free cash flow generation in 2025. The company projects Q4 capital expenditures to be around $200 million and forecasts 2025 capital expenditures at approximately $650 million. Despite some market softness, executives suggested that pricing may be at or near a bottom.
The company ended the quarter with a cash balance of $23 million and net debt of $100 million, an increase of $17 million from the previous quarter.
InvestingPro Insights
Recent data from InvestingPro adds context to Citi's downgrade of Liberty Oilfield Services (NYSE:LBRT). The company's market cap stands at $3.03 billion, with a P/E ratio of 9.66, indicating a relatively low valuation compared to earnings. This aligns with Citi's concerns about margin pressure and reduced EBITDA projections.
InvestingPro Tips highlight that LBRT has raised its dividend for 3 consecutive years, with a current dividend yield of 1.75%. This could be seen as a positive sign for income-focused investors, despite the challenging market conditions noted in the article.
However, reflecting the market's reaction to these challenges, InvestingPro data shows that LBRT's stock has taken a significant hit over the last week, with a 1-week price total return of -10.51%. This recent decline supports Citi's decision to downgrade the stock and lower its price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for LBRT, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.