On Friday, Roth/MKM began coverage on shares of Newpark Resources (NYSE:NR), assigning a Buy rating and setting a price target of $10.00. The firm's analysis forecasts significant growth for Newpark's Industrial Solutions segment, anticipating an organic expansion rate of 10% annually in the coming years.
This growth is expected to be fueled by the rising trends of electrification and decarbonization, an influx of stimulus funding, and increased market share for the company's composite matting systems.
The firm also anticipates that Newpark will sell off its Fluids business, which has been a drag on the company's overall growth and profit margins. The divestiture is expected to cast a spotlight on the profitability and growth of the Industrial Solutions division, potentially leading to a revaluation of Newpark's stock at a higher multiple.
Currently, the company's valuation stands at 7.6 times EBITDA, but the analyst suggests it could re-rate to between 10 and 11 times following the proposed changes.
Newpark Resources operates through two main segments: Industrial Solutions and Fluids. The Industrial Solutions segment, featuring its DURA-BASE product line, offers rental equipment that provides temporary access to various infrastructure projects, including transmission and distribution assets and pipelines.
The market for such equipment in the domestic sphere is estimated to be worth around $4.0 billion, with several significant drivers for growth.
The Fluids segment of Newpark provides drilling fluids essential for oil and gas exploration and production. However, this part of the business is seen as less conducive to the company's growth and is the reason behind the expected divestiture.
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