A Look At Liberty Energy (LBRT) Valuation After Its US$700 Million Convertible Notes Offering
Liberty Energy (LBRT) has moved to the forefront of investor attention after completing a US$700 million zero coupon senior unsecured convertible notes offering. The company expanded a previously announced US$500 million deal and reshaped its capital structure.
See our latest analysis for Liberty Energy.
Despite a 23.03% 1 month share price return and a 49.66% 3 month share price return, Liberty Energy has seen some near term volatility. The stock recorded a 3.85% 1 day share price decline and a 7.07% 7 day share price decline, while the 1 year total shareholder return sits at 39.76%. This points to momentum that has cooled recently as investors weigh the new convertible notes alongside earnings and prior buyback activity.
If this capital raise has you thinking about where else to put money to work in energy exposed infrastructure, it could be worth scanning 24 power grid technology and infrastructure stocks as a starting point for fresh ideas.
With earnings stepping down, a US$700 million convertible on the books, and the share price still up strongly over 12 months, the real question is whether Liberty Energy is now mispriced or if markets are already baking in future growth.
Most Popular Narrative: 3.8% Undervalued
Liberty Energy's most followed narrative pegs fair value at about $25.17 per share, just above the recent $24.20 close, which keeps the focus on what is driving that small gap.
Recent research updates cluster around higher price targets and an upgraded rating, which helps explain the lift in the aggregated fair value estimate to about US$25.17 per share. The focus has been on Liberty Energy's earnings power within oilfield services, as well as how the sector is being repriced after broader target resets.
Want to know why a company with softening completion activity, pressured margins and revenue growth assumptions can still screen as undervalued? The tension between shrinking earnings forecasts, a higher long term cash flow profile and a re-rated sector sits right at the core of this narrative.
Result: Fair Value of $25.17 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, you still need to weigh clear warning signs, including management’s expectations for softer completion activity and pricing, as well as the risk that new power projects take longer to contribute.
Find out about the key risks to this Liberty Energy narrative.
Another View: Multiples Paint A Different Picture
Before you get too comfortable with a small 3.8% gap to the $25.17 fair value estimate, the earnings multiple tells a tougher story. Liberty Energy trades on a P/E of 26.5x, while our fair ratio sits at 8.6x and the US Energy Services industry is at 24.6x.
Against close peers, Liberty looks cheaper, with their average P/E around 36.7x. Yet compared to the fair ratio, the current level implies you are paying a high price for each dollar of earnings. The real question is whether you think the business quality justifies staying above that fair ratio for long.
See what the numbers say about this price — find out in our valuation breakdown.
Build Your Own Liberty Energy Narrative
If you look at the numbers and reach a different conclusion, or simply prefer to test your own assumptions, you can build a tailored view in just a few minutes with Do it your way.
A great starting point for your Liberty Energy research is our analysis highlighting 2 key rewards and 5 important warning signs that could impact your investment decision.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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