Deployment Of 400 MW Power And AI Investments Will Improve Future Prospects

Key Takeaways

• Liberty Energy's innovation in power services and technology aims to enhance margins and lower emissions, boosting earnings and capital efficiency.
  
• Expanding power generation capacity and renewable investments could diversify revenue and increase earnings through improved pricing dynamics and operational efficiencies.
  
• Geopolitical and market uncertainties, coupled with regulatory challenges and equipment issues, pose significant threats to Liberty Energy's profitability and growth prospects.

Catalysts

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

• Liberty Energy's focus on technology innovation in completion services and power generation is expected to drive long-term margin enhancement, improve capital efficiency, and lower emissions, which may positively impact net margins and earnings.
  
• The expansion of Liberty's power generation services business, particularly with the deployment of an incremental 400 megawatts of power generation by the end of 2026, is positioned to meet rising power demand and could significantly boost revenue and earnings.
  
• Liberty's partnerships and investments in renewable energy sectors such as geothermal, nuclear, and battery power, combined with their expertise in natural gas fueling, might increase revenue streams and improve overall revenue diversification.
  
• Liberty's ongoing investment in its AI-enhanced digital systems to optimize fleet operations and management is likely to achieve operational efficiencies, resulting in cost reductions that could enhance net margins and boost earnings.
  
• Potential improvement in frac activity through 2025, along with Liberty's advanced next-generation fleets, positions the company to benefit from better pricing dynamics, which could increase revenue, improve net margins, and grow earnings.

Liberty Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Liberty Energy's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.3% today to 6.3% in 3 years time.
• Analysts expect earnings to reach $298.1 million (and earnings per share of $2.22) by about March 2028, down from $316.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $473.6 million in earnings, and the most bearish expecting $109 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, up from 7.5x 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 decline by 2.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Liberty Energy Future Earnings Per Share Growth

Risks

• The slowing pace of industry activity and late 2024 price pressure has led to near-term pricing headwinds, which could negatively impact Liberty Energy's profitability and adjusted EBITDA in 2025.
  
• The industry's ongoing uncertainties, such as fluctuations in global oil prices due to geopolitical tensions, China's economic growth, and OPEC+ production plans, may affect Liberty's revenue growth and operational stability.
  
• The projected flat lateral footage completed in the industry could result in limited demand growth for Liberty’s completions services, thereby affecting their revenue and net margins.
  
• Fleet idling, attrition, and cannibalization of aging equipment are expected to accelerate, potentially increasing maintenance and replacement costs, thereby impacting Liberty Energy's net earnings and capital expenditure.
  
• High regulatory barriers, underinvestment in grid infrastructure, and harmful energy policies may hinder Liberty's power business expansion, affecting revenue generation and long-term growth prospects.

Valuation

• The analysts have a consensus price target of $20.821 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 $26.0, and the most bearish reporting a price target of just $16.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $298.1 million, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 8.5%.
• Given the current share price of $14.62, the analyst price target of $20.82 is 29.8% 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.