On Tuesday, Barclays (LON:BARC) issued a downgrade for Atlas (NYSE:ATCO) Energy Solutions Inc (NYSE:AESI) stock, moving its rating from Overweight to Equalweight and reducing its price target to $19.00 from the previous $23.00.
The decision comes after a detailed analysis of the company's financial outlook and operational expectations, particularly concerning its Dune Express conveyor system.
The Dune Express, a 42-mile conveyor system, is considered a significant competitive advantage for Atlas Energy Solutions in the highly commoditized proppant market within Energy Services.
However, the expected EBITDA for 2025, following the system's commencement in the fourth quarter of 2024, has been adjusted downward. The new EBITDA projection is now set at $420 million, a decrease from the initial estimate of $528 million.
The revision in EBITDA expectations is based on actual third-quarter results, fourth-quarter guidance, and management's commentary regarding operational expense per ton for the coming year.
It is important to note that this new forecast does not rely on full-year 2025 guidance, which Atlas Energy Solutions management has not provided.
Barclays has also altered its valuation multiple for Atlas Energy Solutions, raising it from 5.5 times to 6.0 times the newly projected 2025 EBITDA. Despite the increased multiple, the new price target still indicates a potential 14% downside from the stock's current levels. The downgrade to Equalweight reflects a more conservative stance on the stock's near-term performance prospects.
In other recent news, Atlas Energy Solutions has seen notable developments. Goldman Sachs has downgraded Atlas Energy shares from Buy to Neutral, reducing the price target to $21 from $23 due to the belief that the shares are now fairly valued. This follows the recent commissioning of the Dune Express and the authorization of $200 million in share repurchases.
Moreover, Goldman Sachs revised its EBITDA forecasts for Atlas Energy for 2025 and 2026, decreasing them by 24% and 15% respectively, reflecting anticipated higher mining costs and a softer outlook for activity in the US land sector.
Despite these challenges, Atlas Energy Solutions reported a 6% quarterly increase in revenue, reaching $304 million in its third-quarter earnings call.
The company also announced a dividend increase to $0.24 per share and a $200 million share repurchase program, reflecting its confidence in its financial health. Atlas expects operational expenses to normalize by year-end despite anticipating a slowdown in E&P activities during the holiday season.
Looking ahead, Atlas expects a seasonal uptick in demand in early 2025, with capital expenditure projected to decrease following the completion of the Dune Express project.
InvestingPro Insights
While Barclays has downgraded Atlas Energy Solutions Inc (NYSE:AESI), recent data from InvestingPro presents a more nuanced picture. The company's revenue growth has been robust, with a 48.67% increase over the last twelve months as of Q3 2024, and an impressive 93.15% growth in quarterly revenue for Q3 2024. This strong top-line performance aligns with one of the InvestingPro Tips, which indicates that analysts anticipate sales growth in the current year.
Despite the downgrade, AESI's financial health appears solid. The company operates with a moderate level of debt, and InvestingPro data shows a healthy gross profit margin of 35.1% for the last twelve months. Moreover, with a dividend yield of 4.59% and a significant dividend growth of 68.33% over the last twelve months, AESI may be attractive to income-focused investors.
It's worth noting that while Barclays has lowered its price target to $19, the InvestingPro Fair Value for AESI stands at $26.25, suggesting potential upside. Investors seeking a more comprehensive analysis can find 6 additional InvestingPro Tips for Atlas Energy Solutions, which could provide further insights into the company's prospects beyond the recent downgrade.
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