Collaborations With ConocoPhillips, ExxonMobil, And Chevron Will Unlock New Revenue Streams

Key Takeaways

• Collaboration with major partners on beneficial reuse technologies could unlock new revenue streams and cost efficiencies, improving overall financial performance.
  
• Strategic investments and efficient capital management drive growth projects and shareholder returns, supporting earnings and enhancing net margins.
  
• Reliance on inorganic growth faces challenges, while regulatory changes and financial commitments for new projects may impact margins and capital availability.

Catalysts

An environmental infrastructure and solutions company, provides water handling and recycling solutions.

• The company anticipates continued volumetric growth and sustained margin strength, driven by increased completions activity. This growth is likely to impact revenue positively in the future.
  
• Operational improvements and enhanced skim oil recovery processes are expected to sustain or improve margins, directly benefiting net margins over time.
  
• The acceleration of beneficial reuse technologies in collaboration with major partners like ConocoPhillips, ExxonMobil, Chevron, and Coterra suggests potential new revenue streams and cost efficiencies, impacting both revenue and net margins.
  
• Efficient capital investment strategies and excess cash generation allow for reinvestment in growth projects and shareholder returns, potentially improving earnings.
  
• Evaluating and potentially reducing variable costs such as third-party landowner royalties through land acquisition or partnerships can further enhance net margins.

Aris Water Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aris Water Solutions's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.8% today to 21.3% in 3 years time.
• Analysts expect earnings to reach $107.5 million (and earnings per share of $1.62) by about December 2027, up from $24.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.7x on those 2027 earnings, down from 30.9x today. This future PE is lower than the current PE for the US Commercial Services industry at 31.0x.
• Analysts expect the number of shares outstanding to grow by 4.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.09%, as per the Simply Wall St company report.

Aris Water Solutions Future Earnings Per Share Growth

Risks

• The company's reliance on inorganic growth opportunities may not materialize as they have not found suitable strategic fits yet, which could impact revenue and future growth projections.
  
• Skim oil recoveries contribute to margins, yet there is inherent variability in these recoveries, which could affect net margins and earnings consistency.
  
• The potential change in oil prices, with a forecast lower than past prices, could offset some margin benefits received from increased skim oil recoveries, impacting EBITDA.
  
• Discussions around new regulatory developments, such as proposed setbacks in New Mexico, have the potential to disrupt operations and revenue if implemented.
  
• Significant financial commitments for scaling up new projects like desalination and mineral extraction could impact available capital for other investments and dividend payouts, affecting net margins.

Valuation

• The analysts have a consensus price target of $24.82 for Aris Water Solutions based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $504.3 million, earnings will come to $107.5 million, and it would be trading on a PE ratio of 18.7x, assuming you use a discount rate of 7.1%.
• Given the current share price of $24.79, the analyst's price target of $24.82 is 0.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.