2025 Refinancing And OraclE-SRT Launch Will Expand Market Reach

Key Takeaways

• Refinancing and strategic shifts in service offerings are set to enhance earnings, shareholder value, and EBITDA growth through cost control and margin expansion.
  
• Focus on proprietary tools and gas-directed markets aims to capitalize on LNG demand and geographic advantages, boosting revenue and supporting debt reduction.
  
• Declining rig count and demand, seasonal pressures, and refinancing costs challenge KLX's revenue growth and margins, with uncertainty in LNG export impacting earnings.

Catalysts

Provides drilling, completions, production, and well intervention services and products to the onshore oil and gas producing regions of the United States.

• Refinancing of 2025 notes and ABL, extending maturities and reducing overall debt, positions KLX for accretive deleveraging M&A, potentially enhancing earnings and shareholder value.
  
• Successful cost controls and strategic mix shifts towards higher-margin completion, production, and intervention services expected to expand net margins and increase adjusted EBITDA in 2025.
  
• New generation of proprietary tools and products, such as the gen 2 OraclE-SRT, targets expected growth in gas-directed basins, potentially boosting revenue from increased market demand.
  
• Anticipated increase in gas-directed completion activity driven by LNG export demand and strategic geographic positioning in key gas-prone regions likely to drive revenue growth.
  
• Continued disciplined capital allocation with lower net CapEx guidance in 2025 supports operational quality, reliability, and growth opportunities, contributing to strong free cash flow generation and further debt reduction.

KLX Energy Services Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming KLX Energy Services Holdings's revenue will grow by 1.5% annually over the next 3 years.
• Analysts are not forecasting that KLX Energy Services Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate KLX Energy Services Holdings's profit margin will increase from -7.5% to the average US Energy Services industry of 8.4% in 3 years.
• If KLX Energy Services Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $62.2 million (and earnings per share of $3.28) by about May 2028, up from $-53.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 3.4x on those 2028 earnings, up from -0.7x today. This future PE is lower than the current PE for the US Energy Services industry at 10.5x.
• Analysts expect the number of shares outstanding to grow by 3.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

KLX Energy Services Holdings Future Earnings Per Share Growth

Risks

• Persistent declines in rig count, which may indicate reduced drilling activity, could negatively impact KLX's future revenues.
  
• The Q4 revenue decrease of 15% compared to the prior year highlights reduced demand that could challenge revenue growth.
  
• Seasonal influences, such as budget exhaustion and winter holidays, might recur and consistently pressure revenues and EBITDA margins.
  
• The refinancing efforts, despite extending maturities, result in slightly elevated future interest expenses, impacting net margins.
  
• Potential uncertainty around gas activity increases, given reliance on LNG export expectations, may pose risks to sustained operational earnings growth.

Valuation

• The analysts have a consensus price target of $8.0 for KLX Energy Services Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $742.1 million, earnings will come to $62.2 million, and it would be trading on a PE ratio of 3.4x, assuming you use a discount rate of 11.4%.
• Given the current share price of $2.04, the analyst price target of $8.0 is 74.4% higher.
• 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.