R.F. Lafferty: U.S. Silica Offers About 45% Upside Potential

U.S. Silica Holdings Inc SLCA, a producer of commercial silica, could be a better bet for those investors looking for exposure to onshore U.S. oilfield services.

The Analyst

R.F. Lafferty analyst Jaime Perez initiated coverage of U.S. Silica Holdings with a Buy rating and $52 price target, suggesting roughly 45 percent upside from the stock's closing level on Tuesday.

The Thesis

U.S. Silica Holdings, a producer of frac sand proppants, is well-positioned to benefit from higher demand from the oil and gas industry, Perez said in a Wednesday morning note.

For the first nine months of 2017, the oil and gas proppants segment accounted for 81 percent of the company's revenues, with proppant production volume at 11.1 million tons, the analyst said. 

U.S. Silica's expected supply of up to 23.5 million tons by mid-2018 represents roughly 24 percent of the total market, the analyst said. Perez expects firming up of frac sand, or silica, demand from increased production levels, as the oil and gas industry looks to capitalize on higher oil and gas prices.

The strong demand outlook could lead to improved frac sand pricing, benefiting U.S. Silica, the analyst said.

U.S. Silica is also capable of delivering product directly to the well site with their last-mile solutions through SandBix, according to R.F. Lafferty.

The Price Action

U.S. Silica Holdings shares have shed about 36 percent over the past year.

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