Jefferies Oilfield Services Stock Picks With 100% to 300% Upside Potential

Any way you look at it, the sledding for energy stock has been difficult this year. Today doesn’t look any better. Despite the best efforts of OPEC and Russia to cut their output, U.S. shale producers have continued to boost output, which has negated much of the cuts elsewhere. The positives for the industry though are noticeable since the big downturn in 2015, which culminated in per-barrel prices bottoming in the mid-$20s. In fact, some think that new U.S. efficiencies can support more activity domestically than most investors expect at $50 or even lower per barrel.

In a new Jefferies research report, the oilfield services team focuses on the pressure pumpers and the frac sand companies, as they feel they offer investors more cushion within the sector to a decline in the rig count, which they feel could number as much as 100 versus the current count of 782.

Jefferies has five stocks rated Buy with price targets that are 100% to 300% above current trading levels. While only suitable for very aggressive accounts, they could supply some big upside for patient, contrarian investors.

Fairmount Santrol

This smaller cap company has solid upside potential for more aggressive investors. Fairmount Santrol Holdings Inc. (NYSE: FMSA) provides sand-based proppant solutions for exploration and production companies to enhance the productivity of their oil and gas wells. The company operates in two segments.

The Proppant Solutions segment primarily provides sand-based proppants for use in hydraulic fracturing operations in the United States, Canada, Argentina, Mexico, China, Northern Europe, and the United Arab Emirates. The company’s products include northern white frac sand, API-spec brown sand and resin-coated proppants, as well as ceramic proppants; PowerProp product; and Propel SSP product that utilizes a polymer coating applied to a proppant substrate.

The Industrial & Recreational Products segment offers raw, coated and custom blended sands for use in building products, glass, turf and landscape and filtration industries, as well as for foundries primarily in North America. Fairmount Santrol also supplies proppants to oilfield service companies.

The Jefferies price target for the shares is a huge $8, though the Wall Street consensus target is even higher at $10.36. The stock closed Monday at $3.71 per share.

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Hi-Crush Partners

This is one of the top frac sand producers, and its stock was recently raised to Buy at Jefferies. Hi-Crush Partners L.P. (NYSE: HCLP) is an integrated producer, transporter, marketer and distributor of high-quality monocrystalline sand, a specialized mineral that is used as proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells.

Hi-Crush reserves, which are located in Wisconsin, consist of northern white sand, a resource that exists predominantly in Wisconsin and limited portions of the upper Midwest region of the United States. Hi-Crush owns and operates the largest distribution network in the Marcellus and Utica shales, and it has distribution capabilities throughout North America.

Jefferies has a $30 price target for the stock, and the consensus target is set much lower at $23.80. Shares closed most recently at $10.25 apiece.

Pioneer Energy Services

This is another small cap company that could be a huge home run for investors, and it also could be a takeover target. Pioneer Energy Services Corp. (NYSE: PES) provides land-based drilling services and production services to a group of independent oil and gas exploration and production companies in the United States and internationally, particularly in Colombia. Besides operating through its two segments, drilling services and production services, it also provides coiled tubing and wireline services offshore in the Gulf of Mexico.

The company’s drilling services segment provides contract land drilling services to a group of exploration and production companies through its four drilling divisions in the United States, as well as in Colombia. Its production services segment provides a range of services to a group of exploration and production companies, with its operations concentrated in the various United States onshore oil and gas producing regions in the Mid-Continent and Rocky Mountain states and in the Gulf Coast.

The massive $6 Jefferies price target compares with the posted consensus target of $5.47. The shares closed most recently at $2.20.

U.S. Silica Holdings

This is another company that has been absolutely smoked recently and has awesome upside potential. U.S. Silica Holdings Inc. (NYSE: SLCA) is a leading producer of commercial silica used in the oil and gas industry, as well as in a wide range of industrial applications. Over its 115-year history, U.S. Silica has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver more than 260 products to the firm’s customers across all end markets.

Shareholders of U.S. Silica are paid a 0.75% distribution. The Jefferies price target is $65. The posted consensus target is $59.24, and the stock ended Monday’s trading at $33.91 a share.

Smart Sand

This is yet another smaller cap company that the Jefferies team remains very positive on, and it has a huge price target. Smart Sand Inc. (NASDAQ: SND) is a producer of northern white raw frac sand, a proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells. The company sells its products primarily to oil and natural gas exploration and production companies and oilfield service companies under a combination of long-term take-or-pay contracts and spot sales in the open market.

Smart Sand owns and operates a raw frac sand mine and related processing facility near Oakdale, Wisconsin. In addition to the Oakdale facility, it owns a second property in Jackson County, Wisconsin, known as the Hixton site.

Jefferies has set its price target at a huge $20. The consensus price objective is $17.18. The shares closed trading on Monday at $7.85.

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Needless to say that while the price targets are enticing, it would take some huge gains to get there, but even half of the targets on many of these companies would be a substantial gain for shareholders. Plus another thing that may make this a timely idea: Jefferies is not the only company bullish on the pressure pumping and frac sand segment, and that validates the idea to some degree.