Liberty Energy Inc. (LBRT – Free Report) , a key player in providing hydraulic services and related technologies to North America’s oil and natural gas exploration and production industry, has encountered challenges in its recent performance. Specializing in hydraulic fracturing services, wireline services, proppant delivery and other complementary offerings, the company plays an important role in supporting the operations of oil and gas companies. However, Liberty’s latest financial report has raised concerns for investors.
Liberty Energy has underperformed in the past six months with a 1.9% decline in share price, while some of its peers in the field services oil and gas industry have seen significant gains. Shares of Baker Hughes (BKR – Free Report) , TechnipFMC (FTI – Free Report) and Oceaneering International (OII – Free Report) have gained 18.2%, 10.5% and 9.6%, respectively.
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Disappointing Performance in Q3
This oil and gas equipment and services company reported a third-quarter 2024 adjusted net income of 45 cents per share, which missed the Zacks Consensus Estimate of 55 cents. This was primarily due to poor equipment and services’ execution, and lower activity in the reported quarter.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
It is worth taking a closer look at the factors impacting Liberty stock from pricing pressures and declining profitability to uncertainties surrounding capital expenditures and industry cyclicality. Given these challenges, let us take a closer look at whether it is time to sell or hold LBRT stock moving forward.
What Is Dragging Down LBRT Stock?
Near-Term Pricing Pressures: The frac industry faces pricing challenges due to excess capacity and softening demand at the year end. Liberty’s management acknowledged that softer activity levels are pressuring service prices, which may affect margins.
Declining Revenues and Profitability: Revenues for third-quarter 2024 decreased 2% sequentially and net income dropped significantly from $108.4 million in second-quarter 2024 to $73.8 million. Adjusted EBITDA also saw a decline, indicating pressures on profitability.
Image Source: Liberty Energy Inc.
Higher CapEx Commitments: While Liberty manages capital expenditures, its investments in technology and new fleets may pressure cash flows if the anticipated improvement in market conditions does not materialize. There is also uncertainty regarding the future scope and timing of investments in power generation, which could impact financial stability.
Exposure to Industry Cyclicality: The company’s performance is closely tied to the oilfield services sector, which is subject to cyclicality. Fluctuations in oil and gas prices, as well as changes in drilling and completions activity, can directly impact Liberty’s operations and financial results.
Short-Term Activity Reduction: Liberty plans to reduce its deployed fleet count temporarily in response to lower demand, which may impact revenues in the coming quarters. Although the company intends to reactivate fleets based on demand, the timing and extent are uncertain.
Final Words: Avoid LBRT Stock
LBRT faces significant challenges, that have impacted its stock performance, including near-term pricing pressures, declining revenues and profitability, higher capital expenditures and exposure to industry cyclicality. While the company is actively managing its capital investments and adjusting LBRT’s operations, the uncertainty surrounding future market conditions, along with temporary reductions in fleet deployment, indicates potential headwinds in the short term. Given these factors and with the company’s current Zacks Rank #4 (Sell), it may be prudent for investors to avoid LBRT stock for now and explore other opportunities within the oil and gas sector.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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