On Monday, JPMorgan retained its Neutral rating on Cactus, Inc. (NYSE:WHD) with a consistent price target of $58.00. The firm anticipates an in-line third-quarter 2024 earnings report for the oilfield services company, despite a slight dip in U.S. land activity. Cactus is expected to perform comparably to its North American (NAM) peers, with JPMorgan's revenue and EBITDA estimates slightly exceeding consensus at $287 million and $100 million, respectively.
The analyst from JPMorgan projects a modest quarter-over-quarter revenue decline of 1% and anticipates EBITDA margins to decrease by 80 basis points to 34.9%. The Pressure Control segment is expected to see a 2% revenue drop, with a 67 basis point margin reduction, attributed to softer industry activity levels. Meanwhile, Spoolable Technologies is forecasted to maintain stable revenue, with the segment benefiting from integrating components through Cactus's established supply chain.
Looking ahead to the fourth quarter of 2024, typical seasonal effects are predicted to influence the Spoolable segment. JPMorgan estimates fourth-quarter EBITDA at $97 million, with margins holding steady at 34.7%. This outlook is supported by margin assumptions for Pressure Control and Spoolable Technology at 33.8% and 40.7%, respectively.
In a challenging macroeconomic environment, Cactus is concentrating on margin-enhancing strategies, including the launch of a new low-cost manufacturing facility by the end of 2024. The company is also introducing new Pressure Control products and expanding its Total Addressable Market (TAM) for Spoolable Technologies, targeting growth with both upstream and midstream clients. Despite delays, Cactus continues to pursue market presence in the Middle East, with a particular focus on Saudi Arabia.
JPMorgan's EBITDA forecasts for 2024 and 2025 remain unchanged at $396 million and $424 million. The firm's price target is set for December 2025, maintaining the previous December 2024 target of $58.
In other recent news, Cactus Inc . has released its Q2 2024 earnings, displaying a notable increase in revenue to $290 million and an adjusted EBITDA of $104 million. The company's cash balance has also seen a significant rise, reaching $247 million. Investors will be pleased to learn of an 8% increase in the quarterly dividend, now standing at $0.13 per share.
While Cactus anticipates a slight decrease in its Pressure Control revenue for the upcoming quarter, it remains optimistic about a stable future for its Disposable Technology segment in North America. The company's strategic trajectory is aimed towards international expansion, with an ambitious plan to generate 40% of its revenue from global markets in the coming years.
Cactus Inc. has also revealed plans for supply chain enhancements and increased deliveries of advanced wellhead systems over the next 18 months. Despite expectations of a moderation in Pressure Control revenue due to decreased drilling activity, the company has shown confidence in maintaining margins through new product introductions and self-help measures.
InvestingPro Insights
Cactus, Inc. (NYSE:WHD) demonstrates strong financial health and growth potential, aligning with JPMorgan's neutral stance. According to InvestingPro data, the company's revenue growth of 24.35% over the last twelve months as of Q2 2024 supports JPMorgan's expectation of in-line earnings. The company's robust EBITDA growth of 42.73% during the same period further reinforces this outlook.
InvestingPro Tips highlight Cactus's financial stability, noting that it "holds more cash than debt on its balance sheet" and "cash flows can sufficiently cover interest payments." These factors contribute to the company's ability to navigate the challenging macroeconomic environment mentioned in the article.
Additionally, Cactus has "raised its dividend for 5 consecutive years," with a current dividend yield of 0.89%. This consistent dividend growth, coupled with a strong return over the last five years, suggests the company's commitment to shareholder value, even as it pursues expansion strategies and new product launches.
For investors seeking a deeper understanding of Cactus's potential, InvestingPro offers 11 additional tips, providing a comprehensive analysis of the company's financial position and market performance.
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