Advanced Technologies And Calculated Expansions Power Strong Market Potential

Key Takeaways

• Expansion into the Beetaloo Basin and advanced technology deployment could diversify revenue streams and enhance operational efficiency, supporting growth and higher margins.
  
• Strategic focus on gas operations and capital return may boost revenues, earnings per share, and shareholder value through increased natural gas demand and capital efficiency.
  
• Liberty Energy faces risks to revenue and margins due to market slowdowns, competitive pressures, and macroeconomic uncertainties, impacting both core operations and diversification efforts.

Catalysts

Provides hydraulic services and related technologies to onshore oil and natural gas exploration, and production companies in North America.

• The successful expansion into the Beetaloo Basin in Australia, with operations expected to commence soon, could diversify revenue streams and drive future growth in revenue.
  
• The development and deployment of Liberty's Advanced Equipment Technologies, including the first digiPrime pumps, emphasize their competitive advantage in technology, likely enhancing operational efficiency and supporting higher net margins in the future.
  
• The advancement of innovative sand handling technologies, like PropX's PropStack and slurry pipe system, can reduce trucking and environmental impact, potentially improving net margins and operational efficiencies.
  
• Liberty Power Innovations' expansion in gas operations sets the stage for tapping into growing natural gas demand, which may boost revenues and earnings following the commissioning of LNG export facilities.
  
• The strategic focus on a return of capital program, coupled with disciplined investment in next-generation technologies, suggests potential growth in earnings per share driven by improved capital efficiency and shareholder value enhancement.

Liberty Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Liberty Energy's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.0% today to 6.8% in 3 years time.
• Analysts expect earnings to reach $314.2 million (and earnings per share of $2.28) by about November 2027, down from $356.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $498.8 million in earnings, and the most bearish expecting $212 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.5x on those 2027 earnings, up from 8.0x today. This future PE is lower than the current PE for the US Energy Services industry at 17.3x.
• Analysts expect the number of shares outstanding to decline by 5.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.16%, as per the Simply Wall St company report.

Liberty Energy Future Earnings Per Share Growth

Risks

• A slowdown in the oil and frac markets, coupled with a dramatic reduction in Q4 activity, poses risks to Liberty Energy's revenue and cash flow, given their expectation of the market's recovery only in 2025.
  
• The volatility in commodity prices and emerging macroeconomic uncertainties may lead operators to hesitate in raising activity levels, affecting Liberty Energy's revenue and pricing strategy.
  
• Competitive pressures and pricing headwinds, especially in the legacy equipment segment, could compress margins and impact earnings if Liberty is forced to lower pricing or adapt contracts.
  
• Expectation of energy market uncertainties, including OPEC+ production plans, Chinese economic growth, and Middle East geopolitical dynamics, could compromise Liberty's revenue forecasts and market position.
  
• The success of the Liberty Power Innovations (LPI) business is still uncertain, and any delays or challenges in scaling this project could adversely affect Liberty's expected diversification in revenues.
  

Valuation

• The analysts have a consensus price target of $20.82 for Liberty Energy 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 $25.0, 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 $4.6 billion, earnings will come to $314.2 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $17.55, the analyst's price target of $20.82 is 15.7% 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.