STEP Energy Services (STEP-T)

STEP is down 35% this year, but up 59% in 52-weeks. 
Profit taking is probably part of the issue here. It did beat estimates in the 4Q, but the sector has been quite weak, and the company has recently seen two downgrades by brokers. 
EPS is supposed to show very little growth in 2023 before recovering somewhat in 2024. 
The drop does seem a bit much based on recent results and considering the very low valuation.  

(A Top Pick January 5/18 Down 63%) Ownership is very thin in this company and this has hurt the valuation dramatically and has gone no bid at times – falling 5% in value a day. They were very predatory in trying to win business and he has since lost faith in their strategy. He will no longer own this going forward.

This coil tubing and pressure pumping company with assets in the US has exposure in the Permian, which is temporarily slowing as infrastructure becomes constrained. In Canada, the market remains even weaker for service companies and there are rumours one of the big players is offering service rates at a 30% discount. The challenge for STEP-T it that their margins may be under pressure. He would not own this name right now.

He thinks it is pretty cheap right now. The company made an acquisition in Oklahoma giving them more fracing assets, which he likes. Investors are a little concerned about infrastructure capacity constraints in the Permian. He has a 12 month target price of $15 and is looking for an entry in this soon.

The challenge is the recent acquisition in the U.S. early this year is being challenged by lower day rates there. He actually prefers Canadian exposure at this time. He thinks the lack of trading liquidity warrants the lower valuation relative to its peers. (Analysts’ price target is $16.75)

He started coverage on this last month. He likes the company and management. They bought Tucker in the US. Book value is $7.63 and would be a very attractive buy if it gets close to book value. He has a 1 year target of $15.00 and a 3-5 year target of $30.00.

They made an acquisition in the US. 78% if their revenues should be fracking and most of the rest is coil tubing. He thinks it is an attractive name to own. It's on his watch list as he does more work. If he is right it could be a $20 stock in the next 3-4 years.

Has been doing a good job diversifying their revenue to more US exposure, by recently buying Tucker, which is a niche pressure pumper in the US. This also diluted down ARC Financial from 66% to 61% ownership. Companies that have a large private equity sponsor get a liquidity discount. As ARC’s share diminishes, the discount will improve. Because of the pipeline uncertainty in Canada, people crave US exposure. They’ve been paying down debt and will be net cash next year. They trade at 3x enterprise value to free cash flow with a 19% cash flow yield. This could easily rise 50% to get back to a semblance of a normal multiple.

One of his major holdings. He's very bullish on pressure pumping. Deal closed today where they bought a U.S. pressure pumper, Tucker. Will be accretive. They will have enough cash flow to buy back 90% of their stock--and there's a growing trend of buybacks in Canada and America. Step gives you exposure to the U.S. pressure pumping market. A cheap stock. It trades at 4.5x earnings and 2x EBITDA with growth potential in U.S.