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From: Dennis Roth	9/8/2011 7:46:09 AM
	2 Recommendations Read Replies (1) of 206150

C&J Energy Services Inc. (CJES) Initiating Coverage; Strong Growth Ahead Tied to Shale Plays 7 September 2011 ¦ 28 pages ir.citi.com or Download Link: sendspace.com Initiating Coverage — We have initiated coverage of C&J Energy Services with a Buy-High Risk (1H) rating and a $33 price target. Following its strong debut as a public company in late July, C&J stock has declined amid the stock market malaise. Trading at a mid-single-digit P/E multiple on projected EPS for both 2012 and 2013—and at a meaningful discount to its peers—C&J shares appear to us to be undervalued. Shale Plays Need More Fracturing Capacity — As a small but rapidly growing hydraulic fracturing services provider, C&J serves the strongest and most profitable market for oilfield services in the world today: the U.S. shale plays. Although the company deployed its first fracturing fleet only three years ago, it has achieved a strong competitive position and an impressive roster of customers. Term Contracts Provide Earnings Visibility — C&J has pursued a policy of signing term contracts for its fracturing fleets at fixed prices. All five fleets operating today are committed under term contracts. C&J is willing to sacrifice a little near-term earnings upside for the stability and earnings predictability that term contracts afford. Exceptional Operating Leverage — Growth in C&J's fracturing fleet and fluctuations in pricing for fracturing services create powerful operating leverage. The impact of adding a new fracturing fleet is on the order of $0.55 per share to annual earnings. We estimate that when C&J completes its current fleet expansion program at the end of 2012, a 10% change in monthly revenue per hydraulic horsepower (HHP) would raise or lower annual EPS by $1.35 from our base case estimate of $4.60 for 2013. Ample Opportunities for Internally Funded Growth — C&J is well positioned to deliver new hydraulic fracturing horsepower to a growing market. With no debt and an estimated $277 million of free cash flow over the next two years (2012-13), C&J is likely to pursue new growth initiatives beyond the scope of its current expansion plans. We expect the company to announce new capacity expansion plans soon.

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