Solaris Oilfield Infrastructure (SOI) Valuation Update - Aug 22

[dan_s]

I highly recommend that you all listen to SOI recent webcast: https://event.choruscall.com/mediaframe/webcast.html?webcastid=hMajhc3O

On July 9th Solaris Oilfield Infrastructure (SOI) announced that it has entered into a definitive agreement to acquire Mobile Energy Rentals LLC ("MER"), a private company that is a premier provider of distributed power solutions serving the energy and commercial & industrial end-markets, for a purchase price of $200 million. Transaction consideration includes $60 million of cash and the issuance of approximately 16.5 million shares of Solaris Class B common stock to MER’s founders and management team, who will join Solaris post-closing.

Founded in 2022 and based in Houston, Texas, MER provides configurable sets of primarily natural-gas powered mobile turbines and ancillary equipment to energy, data center and other C&I end-markets. MER’s solutions provide reliable and cost-effective power where grid infrastructure may not be available or is unreliable.

I am bullish on the upside of “distributed power infrastructure solutions” because there is going to be a big increase in U.S. electricity demand in 2025. Hundreds of natural gas-fired power plants of all sizes will be required to meet demand for electricity.

In 2025 MER estimates that approximately 50% of their new builds will be for AI data centers. SOI believes that there is significant interest from upstream oil companies that can use low-cost produced natural gas to generate their electricity, lowering lease operating expenses. There is a HUGE market for MER's solutions in the Permian Basin where there are pipeline bottlenecks that keep natural gas prices low. Electricity prices in West Texas are high and can spike in peak demand periods.

My valuation of SOI has been increased to $15.00 because, based on my post-merger 2025 forecast which shows the Company’s operating cash flow increasing by more than 75% year-over-year to $171.2 million ($3.65/share) next year.

SOI will keep paying quarterly dividends of $0.12/share for yield of ~4% based on today's share price.

My updated forecast model for SOI has been posted to the EPG website.

[dan_s]

TipRanks: On August 13th Stephen Gengaro at Stifel Nicolaus rated SOI a BUY with a price target of $14.00