FTK - Flotek Industries (FTK) - Estimates and Price Target Raised On Transaction Details

Flotek expands its agreement with Profrac. Revenues now estimated to be $2 billion. Management held a call with analysts and investors to discuss an expansion of its agreement with Profrac. Management was very upbeat about the deal and provided additional details regarding its expectations for revenues ($200 million/year), timing details (in place by summer), and the company's ability grow supply (plant at 50% capacity, little additional capital required). Management also indicated that it now expects Flotek to be cash flow positive by year end and throughout the life of the contract. The arrangement provides additional benefits. In addition to the bottom line, the agreement provides other, less-quantifiable benefits. These include revenue stability, critical mass to expand its customer base and purchase supplies at better rates, and a partner to draw attention to its environmentally-friendly energy solutions. Both firms have an incentive to see the other's operations grow and we believe the deal could result in increased business activity beyond that outlined in the transaction.We view management's projections as reasonable and are incorporating them into our models.2022 Revenues rise to $135 million from $71 million. 2023 revenue estimate initiated at $233 million2022 EBITDA improves to $(3) million from $(35) million with EBITDA turning positive in the September quarter2022 EPS improves to $(0.08) from $(0.12). 2023 EPS estimate initiated at $0.14We are reiterating our rating of outperform and raising our twelve-month price target to $3.00 from $2.50. We view the transaction positively from a Flotek shareholder's point of view and believe higher cash flow generation warrants a higher valuation even after accounting for an increased share count. We believe the stock will perform well this summer as the company reports favorable comparative earnings and cash flow results. Read More >>