North American Oil Demand Will Spur Digital Fracturing Despite Risks

Key Takeaways

• Structural supply constraints and technological edge are poised to drive outsized revenue growth, superior margins, and long-term cash flow resilience well beyond analyst expectations.
  
• Diversified partnerships and international expansion in advanced power and distributed energy unlock substantial future revenue streams and optionality, bolstering Liberty Energy's market position.
  
• Structural headwinds from energy transition, market concentration, intensifying competition, rising ESG pressures, and strategic execution risks threaten Liberty Energy's future profitability and growth.

Catalysts

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

• Analyst consensus anticipates strong demand and incremental market share growth for Liberty due to its top-tier services, but this view underestimates the structural shift underway as rapid attrition of legacy diesel fleets and permanent retirement of Tier 2 assets will likely accelerate a tight supply-demand imbalance far sooner, driving structurally higher pricing and sustained outperformance in revenue and net margins once activity recovers.
  
• While analysts broadly agree Liberty's digital and vertical integration push will boost efficiency, the real impact is understated; Liberty's next-generation digiFleet and real-time analytics are delivering asset lifespans and operational performance multiples above peers, slashing maintenance costs, extending replacement cycles, and setting up a step-change increase in net margins and long-term free cash flow generation.
  
• New, large-scale, multi-decade partnerships in distributed power-including turnkey projects with nuclear and natural gas integration for datacenters and industrial parks-position Liberty to capture outsized, sticky revenue streams and margin expansion from both the surge in AI/data-related electricity demand and reshoring of manufacturing, well ahead of what is currently reflected in the share price.
  
• Liberty's early-mover investments and modular approach in microgrids and advanced power (Oklo SMRs, geothermal, batteries) uniquely position it as a long-term winner as North American energy security and decarbonization offset the slow pace of grid upgrades, supporting durable revenue growth and differentiated earnings resilience across cycles.
  
• International expansion opportunities, underappreciated by the market, create tangible optionality for asset redeployment and growth, with revitalized activity in Australia and scalability to markets like Argentina and the Middle East offering upside to both revenue and fleet utilization, especially as global oil and gas demand continues on a multi-decade growth trajectory.

Liberty Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Liberty Energy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Liberty Energy's revenue will grow by 3.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 5.3% today to 2.4% in 3 years time.
• The bullish analysts expect earnings to reach $110.7 million (and earnings per share of $0.81) by about August 2028, down from $216.8 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 bullish analyst cohort, the company would need to trade at a PE ratio of 37.7x on those 2028 earnings, up from 8.4x today. This future PE is greater than the current PE for the US Energy Services industry at 13.2x.
• Analysts expect the number of shares outstanding to decline by 2.04% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

Liberty Energy Future Earnings Per Share Growth

Risks

• Long-term decarbonization trends and shifting energy policy may cause declining demand for oilfield services, which could shrink Liberty Energy's addressable market and put downward pressure on its future revenues.
  
• The company's heavy reliance on North American shale activity exposes it to structural decline in US oil and gas drilling and completions; any sustained contraction will negatively impact utilization rates and suppress both revenues and net margins.
  
• Increasing industry competition and rapid adoption of automation and digitalization by peers could lead to pricing pressure, margin compression, and reduced earnings, especially if Liberty Energy cannot maintain its technology advantage.
  
• ESG-related regulatory burdens and investor scrutiny are expected to escalate, resulting in higher compliance costs and growing challenges accessing capital, which would limit Liberty's financial flexibility and potentially erode profitability over time.
  
• The gradual transition in capital allocation toward power generation and integrated solutions carries execution and technology adoption risks, and if the growth in that business does not offset a decline in traditional oilfield revenues, Liberty's overall earnings could stagnate or decline in the coming years.

Valuation

• The assumed bullish price target for Liberty Energy is $21.84, which represents two standard deviations above the consensus price target of $15.27. This valuation is based on what can be assumed as the expectations of Liberty Energy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $4.6 billion, earnings will come to $110.7 million, and it would be trading on a PE ratio of 37.7x, assuming you use a discount rate of 8.0%.
• Given the current share price of $11.24, the bullish analyst price target of $21.84 is 48.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.