Phil Flynn breaks down the current fundamentals of the energy sector....
Solaris: A "Value Dream" in Oilfield Infrastructure
08/13/2018 5:00 am EST
Solaris Oildfield Infrastructure (SOI) once again knocked it out of the ballpark in Q2 reporting adjusted EPS of $.42, vs. just $.10 in the record year ago quarter, explains small cap expert Tom Bishop, editor of BI Research.
Stop and register on that — an increase of 320% over last year (which was a record then) and an $0.11 per share sequential increase just since Q1, not to mention a beat on estimates by 8%.
This is phenomenal growth and clear validation that customer like their proppant delivery systems; in fact, the company estimates its market share has increased to around 28% from 25% in Q1.
Revenues were equally spectacular, soaring 252% over last year to $47.1 million (vs. estimates of $44.8 million) and increasing 31% just vs. Q1. This also beat the consensus of $44.9 million.
Solaris makes and supplies portable silo systems that can be delivered on a truck to an oil/gas well site and raised into a vertical position in sets of three silos.
The company added 24 systems in Q2 (8 per month) to reach 122 systems as of 6/30, is already up to 131, expects to end Q3 at 144-146 and be around 160 to 170 systems by year end. Note that Q4 can be a slower time of year seasonally due to time off around the holidays throughout the industry.
Nevertheless, it’s still a rate of growth that would more than justify the company’s ridiculously low PE of 9 times this year’s earnings and 5.8 times next year’s earnings. And the five year growth rate is 48%.
In addition, Solaris isn’t just riding on its silo systems. Phase 1 of its King Fisher Oklahoma sand transload facility is expected to generate $13 million of revenue just from its anchor tenant and generate 70% contribution margin, so that’s certainly not going to slow down margins.
Also, the company is looking into supplying well site tankage, etc. to handle the many liquids on a well site (though not water). It’s customers have been requesting this of Solaris for that past several years and Solaris is now preparing to roll out some initial systems in Q4, with a built in customer base.
I think EPS growth will continue to bubble along nicely barring a collapse in oil prices—and experts I follow think oil will go higher still. Obviously no company can keep up a 300% growth rate, but even 30% would more than justify a higher P/E than single digits.
At the end of the day, imagine how accretive to EPS it would be if a Halliburton (HAL) or Schlumberger (SLB) — with their PE’s in the 20-30 range — acquired Solaris at even 10 times next year’s earnings ($27.50, nearly a double from recent levels), just to throw out a number.
The stock is also a value fund’s dream, showing up on their screens all the time with a price-to-earnings growth ratio of 0.2. With a high ranking in our proprietary stock rating system, I consider these shares a strong buy.
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