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Why, hello there, dear reader. Allow me to begin with a quip from Mark Twain – “The report of my death was an exaggeration.”
This witty saying, while originally about Twain’s obituary, could very well be an apt metaphor for the oil & gas industry’s plight. Threatened repeatedly with an untimely demise, the industry faces stiff competition as renewable energy sources gain ground, with a 50% capacity growth forecasted for 2023.
However, among the turmoil, stands a steadfast fortress of resilience: Liberty Energy Inc. (LBRT), an oilfield services company flaunting a fleet of cutting-edge fracking rigs for oil & gas producers.
Even as the winds of renewable energy revolution gather momentum, Liberty emerges unfazed, boasting impressive growth figures that underscore the lasting power of conventional energy sources.
Today, in the realm of Smart Money, we delve into the intricacies of this eminent energy company, dissecting what it signifies for the oil industry and pondering its lucrativeness as an addition to your investment portfolio at present valuations.
Come along as we embark on this journey…
Liberty’s Unparalleled Performance
One glance at Liberty’s recent earnings report might conjure images of a sprightly Silicon Valley tech startup rather than an oil services stalwart.
In 2023, the company achieved back-to-back years of record earnings per share. To provide context, Liberty has tripled its revenue and quadrupled its gross earnings (EBITDA) since going public in 2017.
Over its first four years post-IPO, Liberty averaged $40 million in EBITDA annually. However, the previous year saw the figure soar to over $1.2 billion, complemented by a 49% year-over-year rise in earnings per share to $3.15.
The numbers speak for themselves – Liberty is clearly excelling in its strategic maneuvers.
Over recent years, Liberty has been transitioning its predominantly diesel-powered frac rigs to a mix of electric and gas-powered models, concurrently building internal capabilities to offer mobile natural gas supply to its gas-powered fleets.
These technological advancements are shaping a fleet that optimizes efficiency, slashes fuel expenses, and curbs emissions. Significantly, this avant-garde fleet also commands substantial demand, propelling Liberty’s revenues skyward despite a reduction in operating drill rigs across the U.S.
In essence, Liberty has accomplished a rare feat – thriving in an industry that is enduring a downturn.
Cruising Through the Energy Landscape
Liberty anticipates no slowdown in the oil sector in the immediate future. CEO Christopher Wright, during the Jan. 25 earnings call, expressed:
“As North American oil production scales previously unseen heights, higher frac activity is imperative to counterbalance production declines… North American operators have historically been, and are likely to remain, primary contributors to the incremental oil and gas supply worldwide. These shifts portend a sturdy, multiyear cycle ahead for energy services… We are transitioning into a less cyclical era than before.”
Wright also presented a compelling case for sustained long-term oil demand, grounded in recent demand patterns. He pondered:
“Are we truly amidst the much-hyped ‘energy transition’? Data suggests otherwise. This isn’t conjecture or preference. Heck, I ventured into other energy domains and commenced my career in nuclear energy and solar. This is merely an unbiased examination of the facts.”
In 2010, global energy consumption was marginally over 500 exajoules. By 2022, this number had dipped slightly below 600 exajoules… What energy sources contributed to this surplus beyond the 2010 consumption baseline of 500 exajoules?
Oil spurred 24% of the global energy surge, chiefly due to the American shale boom. Coal came in third with a 14% contribution to the additional energy needed. Wind ranked fourth at 9%, followed by solar at 7%, and hydro at 4%… How can we label this a transition when the demand for natural gas, oil, and coal persists and even expands their market share?
While Liberty is predominantly focused on fortifying its competitive stance in the U.S. fracking domain, it is also diversifying modestly from its core operations.
One such venture is an investment in a geothermal energy entity named Fervo.
Initially appearing distant from the fracking business, Liberty explains that the engineering techniques pivotal to fracking success could also drive geothermal energy production forward. Albeit this venture is yet to yield revenues, Liberty pursues its advancement earnestly.
I hold a profound admiration for this company. Liberty found a place in my Fry’s Investment Report recommendations back in August 2022. Rationale behind such an endorsement lay in its tech leadership within the energy realm, supported by remarkable earnings and revenue figures. Furthermore, it was attractively priced, trading at merely eight times the 2022 EPS and less than six times the 2023 number.
As of my present writing, the stock in the Fry’s Investment Report milieu has leaped nearly 50%… yet I firmly believe it still has ample room for growth.
Despite Liberty’s stellar track record and earnings ascension, the stock remains trading for below seven times earnings. In essence, investors are treating it as the historically cyclical energy services company it once was, disregarding its metamorphosis into a rapidly expanding technology enterprise.
I opine that the market severely underestimates the company’s growth prospects, hence I reiterate my stance: Liberty Energy Inc. is a solid “Buy.”
No obituaries to be found here.
Warm regards,
Eric Fry
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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