ProFrac Holding: Follow Free Cash Flow

Investment Thesis - ProFrac Holding is experiencing resilient and growing cash flows despite hitting relative all-time lows, with a sequential growth of 187% in free cash flow for Q2 2024, leading to a buy rating for shares [1] Company Overview - ProFrac Holding is a vertically integrated energy services company providing hydraulic fracturing and complementary services to upstream oil and gas companies, with 87% of revenues coming from Stimulation Services [2] Market Dynamics - The company's revenues are cyclical and directly linked to oil and gas demand, with increased drilling activity leading to higher revenues and pricing power [3] - ProFrac has made several acquisitions to enhance its service offerings and vertical integration, positioning itself as a low-cost operator in the fracking industry [4] Financial Performance - In Q2 2024, ProFrac generated $74 million in free cash flow, demonstrating its ability to navigate market challenges despite a weak natural gas market [5] - The company expects to maintain a minimum revenue of$2 billion going forward, with a conservative estimate of $140 million in annual free cash flow based on current performance [6] Valuation - The stock is considered undervalued with a fair value estimate of$9, based on free cash flow projections and a low price-to-sales ratio of 0.46 compared to the sector median of 1.37 [6] Strategic Positioning - ProFrac's acquisitions and vertical integration strategy enhance its competitive edge, allowing it to offer a full-service solution to E&P companies and improve economies of scale [4]