On Thursday, Morgan Stanley adjusted its stance on ProFrac Holding Corp. (NASDAQ: ACDC), downgrading the stock from Equalweight to Underweight and reducing the price target to $6.50 from the previous $7.00. The firm highlighted the broad range of potential outcomes for the oil and gas (O&G) and oilfield services and equipment (OFSE) markets as a key factor influencing the decision.
The analyst at Morgan Stanley expressed that expectations for 2025 are likely to have a significant impact on the stock's performance in the near term, more so than the second half results. According to the firm, the current market conditions for O&G and OFSE are characterized by a particularly wide range of possible scenarios.
In the commentary provided, Morgan Stanley reiterated its preference for investment portfolios that are more defensively positioned, with a greater emphasis on international exposure over North American markets. This strategic preference is based on the firm's assessment of the market dynamics and potential risks.
The new price target of $6.50 reflects a downward revision from the previous target of $7.00, indicating a more cautious outlook on ProFrac Holding's share value. The downgrade to Underweight suggests that Morgan Stanley sees the stock as potentially less favorable compared to other investment opportunities within the same sector.
ProFrac Holding Corp., which is listed on NASDAQ under the ticker ACDC, will continue to be observed by investors as market conditions evolve, especially in light of the firm's stated expectations and strategic preferences for defensive portfolio positions and international market exposure.
In other recent news, ProFrac Holding Corp demonstrated a strong Q2 performance amid market challenges, reporting revenues of $579 million and adjusted EBITDA of $136 million. The company achieved record efficiency in its pressure pumping segment and increased its market share in West Texas. ProFrac also completed the acquisition of Advanced Stimulation Technologies, a move expected to enhance the company's earnings and market position.
Stifel recently downgraded ProFrac from Buy to Hold, citing concerns about the company's high leverage compared to its industry peers and a cautious outlook for future U.S. land activity levels. The investment firm also revised its earnings forecasts for ProFrac, predicting that the company's financial performance may not meet earlier expectations due to a less optimistic assessment of U.S. land sector activity levels.
Furthermore, ProFrac has appointed Michael Henry as the company's principal accounting officer, a move that aligns with the company's strategic focus on strengthening its leadership team and enhancing financial oversight. Henry, a seasoned executive with experience at Basic Energy Services, Inc., FTS International (NYSE:FTSI) Services, LLC, and RadioShack Corporation, will receive a base salary of $325,000 annually.
Looking ahead, ProFrac anticipates a recovery in natural gas volumes in the third quarter and plans to incur $150-200 million in maintenance capital expenditures and approximately $100 million for growth-related capital expenditures in 2024. Despite current challenges in natural gas regions, the company remains cautiously optimistic about the gas market in the second half of the year and is preparing for a flat environment with disciplined cost management.
InvestingPro Insights
The recent downgrade by Morgan Stanley aligns with several key metrics and insights from InvestingPro. According to InvestingPro data, ProFrac Holding Corp. (NASDAQ: ACDC) has experienced significant revenue declines, with a 27.25% decrease in revenue over the last twelve months as of Q2 2024, and an 18.3% quarterly revenue decline in Q2 2024. This downward trend in revenue supports Morgan Stanley's more cautious stance on the company.
InvestingPro Tips further reinforce the challenges faced by ACDC. The company is not expected to be profitable this year, and it has not been profitable over the last twelve months. Additionally, ACDC does not pay a dividend to shareholders, which may make it less attractive to income-focused investors in a potentially defensive market environment.
The company's market capitalization stands at $1.11 billion, with a price-to-book ratio of 0.97, suggesting the stock is trading close to its book value. This valuation, combined with the negative earnings outlook, aligns with Morgan Stanley's decision to lower the price target.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide further context to Morgan Stanley's downgrade. There are 3 more InvestingPro Tips available for ACDC, which could offer valuable perspective on the company's financial health and market position.
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