On Thursday, Citi made a bullish move on Select Water Solutions, Inc (NYSE:WTTR) stock, upgrading from Neutral to Buy. The financial firm has set a new price target for the company at $13.00, indicating a potential upside of approximately 45% from the current trading price.
Citi's optimism stems from Select Water Solutions' strategic shift towards its Water Infrastructure business, which focuses on the management and recycling of produced water.
This move is expected to lead to a re-rating of the company's shares as it transitions from its lower-margin, cyclical completions business to a more stable, higher-margin operation.
The market for public companies with a focus on water infrastructure typically commands a higher valuation, trading at over 6 times forward EBITDA, in contrast to the 3-4 times EBITDA seen in the completions segment of Oilfield Services (OFS) companies.
Citi anticipates that Select Water Solutions will merit a blended multiple of around 4.7 times its estimated 2025 EBITDA, which surpasses the current multiple of approximately 4.1 times.
The analyst also noted that the risk of decreased demand for frac water, a concern in the past, has diminished with the recent uptick in oil prices. This, combined with Select Water Solutions' strategic mergers and acquisitions as well as organic growth, positions the company favorably for future execution on their strategic pivot.
Citi's price target adjustment and upgrade reflect a positive outlook for Select Water Solutions as it progresses with its business transformation and capitalizes on market opportunities.
InvestingPro Insights
In light of Citi's recent upgrade of Select Water Solutions, Inc (NYSE:WTTR), real-time data from InvestingPro provides further context for investors considering the stock. With a market capitalization of $1.1 billion and trading near its 52-week high, the company is garnering attention for its financial metrics and market performance. Select Water Solutions is trading at a P/E ratio of 14.09, which suggests that it is priced attractively relative to near-term earnings growth, with a lower adjusted P/E ratio over the last twelve months as of Q1 2024 of just 12.81.
The company's strategic focus on water infrastructure is reflected in its solid financials, including a gross profit margin of nearly 24% and an EBITDA growth of 5.78% over the last twelve months as of Q1 2024. Additionally, the company's liquid assets exceed short-term obligations, and it operates with a moderate level of debt, which may provide some level of comfort to investors concerned about financial stability.
InvestingPro Tips highlight that analysts predict Select Water Solutions will be profitable this year, a sentiment reinforced by the company's profitability over the last twelve months. Moreover, the stock has seen a strong return over the last three months, with a price total return of 23.76%, and a significant price uptick over the last six months, marked by a 30.66% increase. For those interested in further insights, InvestingPro offers additional tips on Select Water Solutions, which can be accessed with a special offer: use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Investors can find more detailed analysis and additional InvestingPro Tips for Select Water Solutions by visiting https://www.investing.com/pro/WTTR, which currently lists a total of 9 tips for a more comprehensive understanding of the company's outlook.
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