Solaris Oilfield Infrastructure (SOI) Update - Dec 18

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Stifel has raised SOI to a BUY with a price target of $11.00.

Oilfield Services Update 12-18-2020
Heading into 2021, several positive developments are materializing that support our expectation for a recovery in 2021 and a solid 2022.
These include: 1) our expectation that a recovery in oil demand as vaccines are rolled out coupled with upstream underinvestment should
lead to rising oil prices; 2) the recent rise in U.S. completion activity that seems to be gaining momentum into 2021; 3) improving U.S. drilling
activity; and 4) disciplined oil service capital spending that should help pricing as activity rises. Our favorite names include CHX, BKR, BOOM,
WHD and SLB.

Key Points
• OFS Stocks Posts Strong Recovery: Since Schlumberger kicked off 3Q20 earnings season on October 16, the OSX has risen 55.3%
versus the S&P's rise of 6.9%. We believe the sharp increase has been fueled by positive data points around activity and oil prices, as
well as a rotation to cyclicals/value names.
•
Positive Trends: We believe that data points will continue to materialize that support our expectation for rising oil service earnings in 2021
and a recovery to a fairly normal year in 2022. This includes improving crude oil supply/demand fundamentals, rising U.S. drilling and
completion activity, and potential improvement internationally in 2H21. As positives surface that support our 2022 EBITDA projections, we
expect multiple expansion to unfold. As a result, we are raising price targets on several names in our universe. In general, our target prices
are based on a 10-15% discount to the median five-year EBITDA multiple using our 2022 forecasts as a benchmark.
•
Favorites Include CHX, BKR, BOOM, WHD & SLB
• ChampionX (CHX: $14.62, Buy): The combination of Apergy and ChampionX created a business highly leveraged to the production
stage of the well, which is generally more stable relative to drilling and completion activity. We expect CHX to continue to achieve merger
synergies, grow market share as it integrates customers, generate strong FCF and reduce its leverage.
• Baker Hughes (BKR: $21.50, Buy): Diverse global product portfolio, strong LNG backlog, excellent balance sheet, and technologies
that position it to be a potential leader in the energy transition. BKR continues to generate robust FCF and its dividend (3.3% yield)
appears very safe. Recent investment in C3.ai (AI: $117.24, NC) has turned $70 million into almost $1.3 billion.
• DMC Global (BOOM: $46.54, Buy): BOOM is a well-run company with a healthy balance sheet and offers the leading factory assembled
integrated perforating gun. BOOM continues to innovate its perforating systems, recently launched new products which expand its
addressable market, and should benefit as the adoption of integrated perforating systems re-accelerates.
• Cactus (WHD: $27.07, Buy): Holds slightly more than a third of the U.S. market share in wellhead equipment, and we expect additional
share gains from its leading SafeDrill wellhead system. In addition, it appears the company is well positioned for growth internationally.
WHD generates strong FCF, maintains a 1.3% dividend yield, has no bank debt, and could potentially boost the dividend or pay a
special dividend.
• Schlumberger (SLB: $22.93, Buy): SLB's "fit for basin" approach combines product lines, and structures the organization around five
key basins. The leaner SLB is shifting away from commoditized offerings (selling North America pressure pumping business to Liberty
(LBRT: $10.72, Buy) expected to close in 4Q) and is limiting APS investment. SLB is focused on enhancing its returns and FCF through
disciplined capital spending and expanding technological offerings to meet customer needs.
• And One More Name to Watch: We believe that Liberty Oilfield Services (LBRT: $10.72, Buy) is the best positioned pressure pumper,
and we are raising our target price to $15 from $10 based on the expected closing of the merger with SLB's OneStim business. We
expect that the combination of merger synergies, an improving industry outlook, and management's ability to deliver enhanced fleet-level
profitability to a larger asset base bodes very well for the shares.