Does U.S. Well Services Deserve a Place in Your Portfolio?

The shares of hydraulic fracturing services company U.S. Well Services (USWS) have gained in percentage double digits in price over the past few months, thanks to skyrocketing oil prices. However, with declining revenues and bearish growth prospects, will USWS be able to maintain its momentum in the near term? Read on. Let’s discuss.

U.S. Well Services, Inc. (USWS) in Houston, Tex., provides hydraulic fracturing services for oil and natural gas exploration in the United States. The company is a pioneer in electric fracture stimulation, which significantly reduces emissions and increases operational efficiencies. It uses patented electric frac technology to drill crude oil and natural gas from wellheads across the U.S.

Shares of USWS have surged 22.3% in price over the past month as the escalating Russia-Ukraine tensions have driven oil prices to 14-year highs. However, as Russia and Ukraine hold multiple talks to end the conflict, oil prices fell by approximately $5 per barrel today. Oil prices also declined ahead of the Fed's expected interest rate increase this week.

Shares of USWS have plummeted 34.9% in price over the past five days and 5.3% intraday to close Friday's trading session at $1.15.

Here is what could shape USWS' performance in the near term:

Declining Financials

For its fiscal third quarter, ended Sept. 30, 2021, USWS' revenues increased 28.2% year-over-year to $56.48 million. However, the company's loss from operations and loss before income taxes amounted to $7.76 million and $9.58 million, respectively. Its net loss attributable to USWS came in at $15.15 million, translating to a $0.50 loss per share.

Its adjusted EBITDA loss worsened 94.1% from the prior-year quarter to $466,000. And its net operating cash outflow for the nine months ended Sept. 30, 2021, came in at $20.25 million, compared to $19.09 million in operating cash inflow in the same period last year.

Share Capital Dilution

Earlier this month, USWS completed an at-the-market offering of 14.18 million shares at $1.76 each. The company simultaneously offered unregistered warrants to purchase an additional 14.18 million shares in a concurrent private placement offering. USWS raised $25 million in gross proceeds through this offering. It plans to use these funds to finance its working capital expenses and specific capital expenditures.

However, the equity issuance has significantly diluted USWS' share capital, thereby reducing its EPS and ROE.

Bleak Growth Prospects

USWS has stated in its preliminary selected fiscal fourth quarter (ended December 31, 2021) financial and operating data update that its operations were significantly impacted by supply chain-driven downtime. The company expects its revenues to range between $38 million - $39 million, which is substantially lower than the $56.48 million in revenues it generated in the previous quarter. Also, the company expects its EBITDA loss to range between $6 million - $8 million, compared to  a $466,000 loss reported in the fiscal third quarter.

Unfavorable POWR Ratings

USWS has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of F for Sentiment and Stability and a D for Quality. Analysts expect the company's EPS to remain negative until at least this year, in sync with its  Sentiment grade. In addition, the stock's relatively high 1.41 beta justifies the Stability grade. Furthermore, USWS' negative net income margin and ROA justify the Quality grade.

Among the 41 stocks in the Energy – Services industry, USWS is ranked #34.

Beyond what I have stated above, view USWS ratings for Momentum, Value, and Growth here.

Bottom Line

USWS gained momentum over the past month due to surging oil prices. However, with many Republicans pushing for increased domestic drilling to combat skyrocketing oil and gas prices and Fed's impending rate hike, oil prices are likely to remain under pressure in the near term. Furthermore, USWS' operations are expected to be adversely impacted by worsening supply chain disruptions. Given this backdrop, we think the stock is best avoided now.

How Does U.S. Well Services (USWS) Stack Up Against its Peers?

While USWS has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Rex American Resources Corp. (REX) and North American Construction Group Ltd. (NOA), which have an A (Strong Buy) rating.

USWS shares fell $1.15 (-100.00%) in premarket trading Monday. Year-to-date, USWS has declined 0.00%, versus a -11.56% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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