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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (46232)	1/19/2012 11:54:41 AM
From: ParPlusAccrued	2 Recommendations Read Replies (1) \| Respond to of 78523

Here are my concerns about CJES. There are no barriers to entry in the business long-term and no way does the business sustain 30%+ EBITDA margins. At the end of 2012, CJES is expected to have 270,000 of frac horsepower. The average frac fleet has 32,000 horsepower of capacity and the cost of ordering a new frac fleet is $25MM today. That means that the replacement cost of these assets should be $210MM or $4.00 / share. Without any sustainable barriers to entry, the assets are really only worth their replacement cost. The market for frac capacity has recently been tight, but companies like HAL, SLB, etc. have talked about frac rates flattening / weaking in certain markets with the addition of new capacity. Furthermore, the horizontal rig count has recently stopped growing in the US (likely due to European concerns). This is not to say that margins collapse tomorrow, only that they will at some point. I guess you can add some value for the super-normal earnings that CJES may get for the next 1 - 2 years that the market remains tight, but I still think that's a long way away from the $17.50 where the stock currently trades. Also, I'm concerned since 26% of the stock is still locked up and the lock-up period expires at the end of this month.