According to Citi, this water provider to oil and gas drillers could see a 40% increase

Select Water Solutions is on track to outperform the competition thanks to its recent strategic business changes, as highlighted by Citi analyst Scott Gruber. The company, known for providing sustainable water services for the oil and gas industry, has shifted its focus towards water infrastructure, specifically the management and recycling of produced water. This move away from more volatile completions activity is expected to result in higher and more stable margins for Select Water, leading Gruber to upgrade the company’s shares to a buy rating and increasing the price target to $13, representing a 40% upside potential.

Gruber believes that Select Water Solutions is well positioned to execute on their strategic shift, citing recent mergers and acquisitions as well as organic growth as key factors driving the company’s success. This outlook is further supported by the company’s current trading position at a discount compared to its competitors. While Select Water Solutions is trading at around four times its earnings before interest, taxes, depreciation, and amortization for the next 12 months, Aris Water Solutions, one of its main competitors, is trading at a 6.5 multiple.

With the acceleration of its Infrastructure growth through M & A activity, Gruber notes that Select Water Solutions should be trading at a blended multiple of around 4.7x, slightly above the current 4.1x multiple. This shift in focus comes at an opportune time as the downside risk associated with slowing demand for frac water seems to have passed due to rising oil prices. The positive outlook for the company is further reinforced by the industry trends supporting its decision to deemphasize the more volatile completions activity in favor of the more stable water infrastructure business.

Overall, Select Water Solutions’ strategic pivot towards water infrastructure has positioned the company for future success and growth. By aligning its business model with industry trends and focusing on higher margin opportunities, the company is expected to benefit from increased stability and profitability. With the backing of Citi and analyst Scott Gruber’s bullish sentiments, Select Water Solutions is poised to emerge as a winner in the competitive landscape of sustainable water services for the oil and gas industry. Investors may want to take note of this promising outlook for Select Water Solutions as it continues to navigate through its strategic transformation towards a more profitable business model.