Gold prices hit 2-week high as Trump-Fed feud escalates with Cook firing
On Friday, Stifel adjusted its stance on ProFrac Holding Corp. (NASDAQ:ACDC), downgrading the stock from Buy to Hold while maintaining a price target of $7.00. The investment firm cited a more cautious view of the future U.S. land activity as the primary reason for the downgrade. Additionally, concerns regarding ProFrac's higher leverage compared to its industry peers were highlighted as a potential obstacle for the company's stock valuation.
Stifel's revised outlook includes a reduction in the earnings before interest, taxes, depreciation, and amortization (EBITDA) forecasts for the years 2024-2025. The firm's analysts now anticipate that ProFrac's financial performance may not meet earlier expectations due to a less optimistic assessment of the U.S. land sector's activity levels.
The price target of $7.00 set by Stifel for ProFrac's shares is based on a multiple of 4.5 to 5.0 times the projected EBITDA for the year 2025. This valuation metric is a common approach used by analysts to estimate a company's market value relative to its earnings potential.
The investment firm also expressed concerns about ProFrac's debt situation. According to Stifel, ProFrac's high leverage, when compared to its competitors, could be a point of worry for investors, especially in a market scenario where activity levels are flat or slightly declining.
In conclusion, Stifel's decision to lower the rating on ProFrac Holding Corp. reflects a more conservative forecast for the company's earnings and the broader U.S. land activity. The firm's analysts believe that the combination of reduced activity expectations and the company's comparative debt levels could dampen investor sentiment towards ProFrac's stock.
In other recent news, ProFrac Holding Corp demonstrated a strong Q2 performance amid market challenges, reporting revenues of $579 million and adjusted EBITDA of $136 million. The company achieved record efficiency in its pressure pumping segment and increased its market share in West Texas. ProFrac also completed the acquisition of Advanced Stimulation Technologies, a move expected to enhance the company's earnings and market position.
In addition, ProFrac has appointed Michael Henry as the company's principal accounting officer, a decision that aligns with ProFrac's strategic focus on strengthening its leadership team and enhancing financial oversight. Henry, a seasoned executive with experience at Basic Energy Services, Inc., FTS International (NYSE:FTSI) Services, LLC, and RadioShack Corporation, will receive a base salary of $325,000 annually.
ProFrac anticipates a recovery in natural gas volumes in the third quarter and plans to incur $150-200 million in maintenance capital expenditures and approximately $100 million for growth-related capital expenditures in 2024. Despite current challenges in natural gas regions, the company remains cautiously optimistic about the gas market in the second half of the year and is preparing for a flat environment with disciplined cost management.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Stifel's downgrade of ProFrac Holding Corp. (NASDAQ:ACDC). The company's market capitalization stands at $1.18 billion, reflecting its current position in the market. ProFrac's revenue for the last twelve months as of Q2 2023 was $2.22 billion, with a revenue growth of -27.25% over the same period, aligning with Stifel's concerns about future U.S. land activity.
InvestingPro Tips highlight that analysts do not anticipate the company will be profitable this year, which supports Stifel's cautious stance. Additionally, ProFrac does not pay a dividend to shareholders, which may impact its attractiveness to certain investors, especially in a potentially challenging market environment.
Interestingly, despite the downgrade, ProFrac has shown a strong return over the last month, with a 25.86% price total return. This short-term performance contrasts with the longer-term outlook presented in the article and underscores the complexity of the current market dynamics.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide a fuller picture of ProFrac'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.