Is ProFrac Holding Corp. IPO a Good Investment?

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ProFrac Holding (NASDAQ:PFHC)

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Although the hydraulic fracturing industry enabled the U.S. to become a powerful source of energy production and distribution, the sector has generated plenty of controversy.

However, Russia’s unsettling attack against neighboring Ukraine catapulted a fresh paradigm in the global energy market, thus making fracking great again.

On paper, new listings associated with energy exploration and production initiatives leveraging fracking may be lucrative, but investors must be cognizant of myriad risk factors.

Back near the beginning of 2020, the intrusion of the COVID-19 pandemic swiftly brought an abrupt (though ultimately temporary) end to the rising equities market. But that didn’t mean every single company suffered from the fallout. In a similar vein, the recent volatility in benchmark investment indices spells trouble for most but not all businesses. One in particular, ProFrac Holding Corp., could end up being a positive outlier.

When the global health crisis initially breached the U.S., most stocks incurred immediate pressure from panicky investors. However, publicly traded corporations that facilitated contactless operations — most notably Teladoc Health Inc. (NYSE: TDOC) — saw little to no bearish activity. Instead, they increased in market value dramatically as their core business aligned with the immediate needs of the new paradigm.

Now in 2022, the fossil-fuel industry may enjoy what the telehealth sector did during the health scare: robust trading activity. On some levels, it’s reasonable to expect a better outcome. For instance, ProFrac, which specializes in hydraulic fracturing (or fracking as it’s known colloquially), will likely play an important role in mitigating soaring energy costs. Further down the line, it could also help wean western nations from the hydrocarbon teats of unreliable commodities providers.

Though compelling, fracking is a controversial and politically divisive practice. As well, researchers are exploring the myriad potential dangers of extracting oil or natural gas from high-pressure injections into bedrock formations. In other words, investors cannot avoid the concept of causality, with one action sparking unexpected consequences. Thus, ProFrac features a mix of pros and cons that prospective buyers should weigh carefully.

What Does ProFrac Do?

As its brand name implies, ProFrac provides hydraulic fracturing and completion services, mainly to upstream exploration and production (E&P) projects in North America. Based in Willow Park, Texas, ProFrac features a vertically integrated business, covering multiple complementary products and services to the core fracking operation.

Soon, the company will launch its initial public offering (IPO), or the first time that a privately held enterprise distributes its equity shares to retail investors. One of the core reasons why management is seeking expansion through the capital market is its massive footprint, being one of the largest privately owned fracking companies in North America.

Additionally, ProFrac enjoys the below competitive advantages:

  • Technological integration: According to ProFrac’s Form S-1 disclosure with the U.S. Securities and Exchange Commission (SEC), the fracking specialist may have the “largest fleet of low emissions and technologically advanced conventional frac equipment” in the nation.
  • Structural flexibility: Per the S-1, “We operate a vertically integrated business model that includes complementary manufacturing, frac design, sand and chemical supply and data reporting services. This enhances our profitability through reduced capital and maintenance expenditures, and provides a significant advantage in cost savings and supply chain management versus our peers who do not manufacture and rebuild/refurbish their own equipment and components.”
  • Customer loyalty: Thanks to ProFrac’s reputation within the energy industry, it levers a strong portfolio of active customers that highly value the underlying technologically advanced equipment. Moreover, ProFrac has pivoted to services that cater to environmental, social and governance (ESG)-related concerns and initiatives.
  • Large scale and leading market share: According to management’s IPO disclosure, “We operate in some of the most active basins in the United States, including the Appalachian, East Texas/Louisiana and Permian Basins and our operations are heavily weighted towards natural gas production activity. This geographic diversity reduces volatility in our revenue due to basin trends, relative commodity prices, adverse weather and other events.”

Finally, ProFrac is a mission-focused entity, with the leadership team commanding more than a century’s worth of combined relevant experience in the fracking and traditional energy industries. Therefore, the company has the acumen to effectively navigate ProFrac across a range of variable circumstances.

When is the ProFrac IPO Date?

Assuming no unusual developments, ProFrac is scheduled to make its entry in the IPO calendar on May 12, 2022. Shares will trade on the Nasdaq exchange under the ticker symbol PFHC. JPMorgan Chase & Co. (NYSE: JPM), Piper Sandler Companies (NYSE: PIPR), Morgan Stanley (NYSE: MS) and BofA Securities under Bank of America Corp. (NYSE: BAC) represent the joint bookrunners for the IPO.

Under the terms of the deal, ProFrac intends to raise $360 million through the distribution of 16 million shares at a price range between $21 and $24 per share. At the middle of this pricing spectrum, ProFrac would command a market capitalization of $3.2 billion. Following a very slow period in the IPO arena, this deal represents one of the biggest new listings of the year so far.

As a result, active investors should pay attention to the debut of PFHC stock, irrespective of their intentions to participate in the offering. Amid heavy volatility in the global equities space, analysts are curious about the vitality of IPOs. Given their nature as shots in the dark, public market debuts are very much risk-on investment vehicles. Therefore, a successful launch carries implications for the rest of the field.

Plus, PFHC stock might fare better than other IPOs in the recent past. To be clear, no guarantees can be made. However, on a year-to-date basis through the eve of ProFrac’s launch date, the benchmark S&P 500 index was down 18%. In sharp contrast, big oil giant Exxon Mobil Corp. (NYSE: XOM) was up almost 37% during the same period.

What Analysts are Saying About ProFrac IPO

According to information provided by The Wall Street Journal, analysts have not yet chimed in on PFHC stock prior to its IPO. Nevertheless, both the main pros and cons for the fracking company are readily apparent.

First, geopolitical dynamics offer a lucrative though incredibly cynical upside pathway for ProFrac. According to the U.S. Energy Information Administration, imports from Russia accounted for 8% of all U.S. petroleum imports in 2021, which is a relatively small share of Russia’s hydrocarbon output. Still, this number isn’t zero — a figure that the Biden administration would likely want to see. To get there, fracking is a necessity.

Second, the American public is suffering from severe pain at the pump. Sadly, some experts believe that relief will not arrive soon, with Russia’s invasion of Ukraine escalating, along with the demand-spiking Memorial Day holiday arriving just around the corner. Thus, a confluence of events could see prices soar, causing the electorate to demand serious solutions. Obviously, fracking could be intriguing under this backdrop.

However, the other side of the equation is causality. You can’t have your hydrocarbon cake and eat it too, particularly because fracking is a geologically intensive process. Because of this dynamic, academic experts have sounded the alarm, noting that fracking may spark myriad risks, including groundwater contamination, exposure to toxic chemicals and industry-induced earthquakes.

But by far the biggest fundamental risk to PFHC stock is the eschewing of long-term stability to address short-term needs. Fracking consumes a significant amount of water — water that this country does not have the luxury of wasting. Unfortunately, there’s no such thing as a free lunch, especially when it comes to broader energy security and independence.

ProFrac Financial History

Though an enticing IPO based on the latest headlines, ProFrac’s bullish narrative takes a sizable hit because of its financials. On one hand, revenue growth is positive though lacks punch. In the nine months ended Sep. 30, 2021, ProFrac’s $520.3 million in sales was up 26% year-over-year. However, in the full year 2019, the company posted nearly $848 million in sales, meaning that it had a higher sales rate in the pre-pandemic era.

More importantly, ProFrac continues to post net losses, which is distracting given the relevance of the core business. In the first three quarters of 2021, the company lost $48.7 million, an improvement from the net loss of $85.5 million in the year-ago period but still not an encouraging figure.

ProFrac Potential

Without question, ProFrac and the fracking industry overall represents a vital component of the U.S. energy profile. But the question is, how much should the country depend on this processing of extracting hydrocarbons from the ground? Increasingly, the answer appears to be as minimal as possible.

Due to the water consumption of fracking, the U.S. and its allies risk exposing themselves to crippling water shortages in their bid to economically suffocate Russia. Therefore, fracking may only be a part of the answer, with other sources such as nuclear power presenting complementary support.

Where to Buy ProFrac IPO Stock

If you want to participate in ProFrac’s IPO, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of best brokers to consider.

PFHC Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

PFHC Pre-IPO

No pre-IPO opportunity is available at this juncture although investors seeking early bird access should open an account with ClickIPO.com.