Mammoth Energy Services Part 2: Estimates And Relative Valuation

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Our regression equation suggests a steep revenue growth for TUSK in NTM 2023 and a deceleration afterward.

EBITDA, however, can accelerate in NTM 2024 after steady growth in NTM 2023.

The stock is reasonably valued versus its peers.

Part 1 of this article discussed Mammoth Energy's (TUSK) outlook, performance, and financial condition. In this part, we will discuss more.

Linear Regression Based Revenue Forecast

Based on a regression equation between the key industry indicators (crude oil price and rig count) and TUSK's reported revenues for the past eight years and the previous four quarters, we expect its revenues to increase by 62% in the next 12 months (or NTM) 2023. The growth rate can moderate to 31% in NTM 2024. For the short-term trend, we have also considered seasonality.

Based on the same regression model and the forecast revenues, we expect the company's EBITDA to increase by 38% in NTM 2023. The model suggests the EBITDA growth rate will accelerate to 64% in NTM 2024.

Target Price And Relative Valuation

Returns potential using the forward EV/Revenue multiple (0.65x), as derived from the revenue forecast, is much higher (22% upside) than the returns potential using the past average EV/Revenue multiple (11% downside) from the stock.

Relative Valuation

Mammoth Energy's current EV/Revenue multiple is 1.05x. The stock's past five-year average EV/EBITDA multiple was 0.77x. So, it is currently trading at a premium to its past average.

TUSK's EV/Revenue multiple is higher than its peers' (EXTN, WTTR, and PUMP) average of 0.68x. Because TUSK's forward EV/Revenue multiple is contracting more steeply than its peers (because the revenue growth is higher), it should typically reflect in a higher EV/Revenue multiple. So, the stock is reasonably valued at the current level.

What's The Take On TUSK?

The global economic slowdown, Ukraine conflict, and supply chain issues have not deterred Mammoth Energy from reactivating the fifth frac spread in January. Because the topline growth appears limited, it plans to upgrade another frac spread to Tier 4 dual fuel. Despite the challenges of supply chain constraints, inflation, and higher labor costs, Mammoth's management is confident that the macroeconomic trend will further support demand for its sand services. Its cash flows turned positive in FY2022. So, the stock outperformed the VanEck Vectors Oil Services ETF (OIH) in the past year.

In the long term, TUSK pins its hope on infrastructure as a critical growth driver due to significant federal investment programs. The company's balance sheet is free from any immediate impending risks. Its FY2022 capex fell short of the previous commitment due to supply chain constraints resulting in dual-fuel engine delivery delays. However, in 1H 2023, capex can rise. Given its reasonably well-placed relative valuation, the stock is apt for a "hold" in the short term.