Permian Decline Will Weaken Margins Although Market Share Holds

Key Takeaways

• The shift toward renewables and regulatory pressures threatens Atlas Energy Solutions' core oil and gas services, causing lower revenues and increased costs.
  
• Dependence on Permian Basin activity, sand oversupply risks, and reduced investor interest in oilfield services may lead to revenue volatility and constrained growth.
  
• Strong market share growth, operational cost advantages, and strategic diversification position Atlas for margin expansion and stable cash flows despite industry volatility.

Catalysts

Engages in the production, processing, and sale of mesh and sand used as a proppant during the well completion process in the Permian Basin of West Texas and New Mexico.

• The accelerating global transition toward renewable energy and increasing decarbonization initiatives are expected to structurally reduce long-term demand for oil and gas, directly undermining the core growth prospects for Atlas Energy Solutions' proppant and sand logistics businesses, resulting in lower future revenues and depressed earnings growth.
  
• Progressive regulatory tightening, potential carbon taxes, and greater environmental scrutiny in developed markets will increase Atlas' operating costs and raise barriers for fossil fuel infrastructure, negatively impacting net margins and reducing free cash flow in the long term.
  
• High reliance on Permian Basin activity makes Atlas especially vulnerable to regional downturns and well completion cycles; with the recent drop in frac crew counts and the risk of further decline, revenue volatility is likely to persist and could intensify as the basin matures or if macro changes drive US shale contraction.
  
• The long-term threat of sand oversupply, ongoing proppant commoditization, and the potential adoption of alternative well stimulation technologies can drive structural downward pressure on sand prices, resulting in lower average selling prices and further compressing net margins despite investments in higher-value logistics and integration.
  
• Rising ESG investment mandates and capital rotation away from oilfield services will likely lead to persistent declines in sector equity valuations and constrict access to capital for Atlas, limiting their ability to fund growth projects and return capital to shareholders, further weighing on market capitalization and total return potential.

Atlas Energy Solutions Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Atlas Energy Solutions compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Atlas Energy Solutions's revenue will decrease by 0.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.2% today to 12.1% in 3 years time.
• The bearish analysts expect earnings to reach $141.1 million (and earnings per share of $1.31) by about August 2028, up from $14.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, down from 103.6x today. This future PE is greater than the current PE for the US Energy Services industry at 12.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Atlas Energy Solutions Future Earnings Per Share Growth

Risks

• Atlas has demonstrated resilient market share gains, expanding from 15% at IPO to approximately 35% by 2024, with prospects for further growth as industry consolidation forces competitors to idle capacity, which could lead to higher and more stable revenue even in difficult industry conditions.
  
• Long-term industry trends such as rising sand intensity per well and advancements in completion technology are likely to drive sustained baseline demand for frac sand, setting the stage for volume growth and upward pressure on Atlas's net earnings as drilling activity rebounds.
  
• The Dune Express logistics system and Atlas's vertically integrated low-cost network provide significant structural cost advantages, allowing the company to capture sticky customer relationships and premium pricing, which will support margin expansion even as industry pressure persists.
  
• Diversification into power through the Moser Energy Systems acquisition introduces a new growth avenue outside traditional oil and gas markets, with long-duration contracts targeting industrial and technology segments that may offer more predictable recurring revenues and stabilize long-term cash flows.
  
• Despite short-term headwinds in the Permian, Atlas maintains the flexibility to allocate capital efficiently, preserve its dividend, and continue investing in innovation and automation, enabling durable free cash flow and supporting future earnings and shareholder returns as supply rationalization progresses and demand recovers.

Valuation

• The assumed bearish price target for Atlas Energy Solutions is $12.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Atlas Energy Solutions's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $12.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $141.1 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $11.7, the bearish analyst price target of $12.0 is 2.5% higher. The relatively low difference between the current share price and the analyst bearish 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.