FTK - Flotek Industries (FTK) - Coverage Initiated

Initiating coverage of energy service company poised to take advantage of growing environmental focus by energy drillers. Flotek Industries is a green, technology-driven specialty chemistry and data company selling across industrial, commercial and consumer markets. Primary products include specialty chemicals for oil and gas producers, cleaning and sanitation products, and data analytics.Sales should improve as drilling picks up. Oil and gas prices have risen in recent quarters leading energy companies to increase drilling activity. Increased drilling should result in increased demand for Flotek’s products. We look for revenues to show favorable growth trends in upcoming quarters.New Focus On International Should Lead to Sales Growth. Flotek is actively marketing its Energy Chemistry and Data Analytics products to the Middle East, Africa, and Asia. The company began a pilot program with an oil company in the Middle East in the first quarter of 2021. We believe other programs will follow. We see these as untapped areas that could have a significant impact on sale growthAddition of Cleaning Product Line and Data Analytics Division Reduces Reliance on Drilling Activity. The addition of sanitizer, spray and surface cleaning products following the pandemic outbreak has diversified the company away from the boom-bust cycles associated with energy drilling. So too has the acquisition of JP3, an energy data analytics company.We rate the shares of FTK as OUTPERFORM at prices below our twelve-month price target of $2.50 per share. Our price target is based on a two-stage discounted cash flow analysis that projects cash flow for the next five years and then assumes growth at 3%. Projected cash flow is discounted back at a weighted average cost of capital of 10% and then adjusted for estimated cash and debt outstanding at the end of twelve months. Read More >>