Expansion Into Jafurah Field And ROYA Drilling Will Strengthen Future Prospects

Key Takeaways

• NESR's expansion into unconventional gas projects in the Middle East and new market entries are poised to drive future revenue growth.
  
• Technological advances and decarbonization projects offer revenue diversification and margin improvement opportunities, while strong cash flow supports growth investments.
  
• Geopolitical risks, market conditions, and oil price volatility could impact NESR's operations and profitability, while increased competition pressures pricing and capital allocation challenges net earnings.

Catalysts

Provides oilfield services in the Middle East and North Africa region.

• NESR is positioned for growth due to its expansion into unconventional gas development projects, particularly in Saudi Arabia's Jafurah field, as well as other ongoing gas projects in the UAE, which are expected to drive future revenue growth.
  
• The company's entry into new markets, such as Libya and enhanced presence in existing markets, like Kuwait, should support revenue growth due to increased oil and gas production activities in these regions.
  
• The continued rollout and commercialization of NESR's ROYA Directional Drilling platform represents a forward-looking catalyst that could improve revenue and potentially operational margins due to technological advantages.
  
• NESR's focus on NEDA decarbonization projects, including CO2 capture and water technology developments, presents opportunities for revenue diversification and long-term margin improvement.
  
• Strong cash flow and a reduced debt burden position NESR favorably for growth investments or shareholder returns, potentially enhancing EPS and financial resilience.

National Energy Services Reunited Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming National Energy Services Reunited's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 8.7% in 3 years time.
• Analysts expect earnings to reach $140.8 million (and earnings per share of $1.46) by about March 2028, up from $76.3 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 13.0x on those 2028 earnings, up from 9.7x today. This future PE is lower than the current PE for the US Energy Services industry at 13.8x.
• Analysts expect the number of shares outstanding to grow by 0.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.46%, as per the Simply Wall St company report.

National Energy Services Reunited Future Earnings Per Share Growth

Risks

• Geopolitical uncertainty in the Middle East could pose risks that impact NESR's operations and profitability, affecting overall revenue and earnings stability.
  
• Market growth in the Middle East and North Africa region is moderated compared to recent years and could further decline if economic conditions worsen, impacting NESR's revenue projections.
  
• Increased competition in the MENA region could pressure pricing, potentially affecting revenue growth and net margins.
  
• Dependence on a stable oil price environment for ongoing projects poses risks; a significant drop in oil prices could lead to reduced project activity and lowered revenues.
  
• The need for significant capital allocation toward new growth opportunities may not yield profitable returns immediately and could strain financial resources, affecting net earnings.

Valuation

• The analysts have a consensus price target of $14.25 for National Energy Services Reunited 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 $17.0, and the most bearish reporting a price target of just $12.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $140.8 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of $7.72, the analyst price target of $14.25 is 45.8% 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.