EMES: Citi Research increases target price

[dan_s]

Emerge Energy Services LP (EMES)
Increasing Estimates & TP; Remain at Buy
 Increasing Estimates and TP — We are increasing our target price to $42.00
based upon a higher distribution outlook as YTD operational performance and a
resilient frac sand margin have surpassed our previous expectations. Adj. EBITDA
estimates are increasing by 4% in 2014 and 8% - 10% for ‘15 thru ’17. Our Q4:13
estimates are increasing by ~6% as we believe results will again surprise to the
upside on the back of solid sand sales and stabilized margins.
 Compelling Valuation — In our view, EMES trades at a significant discount to its
peer group despite organic growth opportunities from its Barron plant, cost
efficiency gains once Sioux Creek comes on-line in ’14, and the potential for other
growth projects and/or acquisitions. Our target price uses a valuation matrix
approach with both a target yield (9%) and ’14 EBITDA multiple (12.0x) that are
below EMES’ peers (6.5% and 12.5x, respectively). Accordingly we believe units
could trade above our target price should the market afford comparable metrics to
the partnership.

Based on my forecast model, EMES should be able to distribute $4.00 to unitholders in 2014.