Analyst Struggle To Get A Grip On Fairmont Santrol Future Performance

Morgan Stanley upgraded Fairmont Santrol Holdings Inc (NYSE: FMSA) to Overweight citing a repaired balance sheet enabling the company to hobble through the foreseeable future - that is until Wells Fargo splashed some reality on the minds of participants.

Morgan Stanley's Ole Slorer said Fairmont Santrol's decision to push out its debt overhand from 2017 to 2018-2019 may help the company since, according to Slorer, "we see reason to believe in a much more favorable capital market environment in 2017-2018 vs. today." Slorer and his team sees the frac sand industry well positioned in the onshore industry, meaning it will likely to be the first industry to experience pricing power following significant oversupplies. The company's need to refinance roughly $1 billion in debt due in 2019 should find more favorable terms in 2017 than if the company refinanced today.

Related Link: Morgan Stanley Shows Increased Conviction In Frac Sand Theme; Upgrades Fairmount

Countering the bullish comments from Morgan Stanley is Wells Fargo's Judson Bailey who says challenges facing companies like FMSA include overcoming "extremely high debt levels with significantly lower EBITDA and banking/debt markets that could be challenging for several more years, creating an uncertain environment for debt and credit renewals."

Bailey sees the entire offshore drilling and OSV sectors potentially being weighted down by high levels of existing debt and potential shrinking of available debt capacity in the coming years. Bailey estimates that Net Debt/TTM EBITDA will swell from roughly 4x in 2016 to 8x in 2018:

On May 11, Goldman Sachs' Wagar Syed reiterated a Neutral rating on FMSA citing weakening 2016/2017/2018 EBITDA estimates along side sequential declines in Proppant Solutions segment volumes.

Counter to the bearish outlook from Goldman is Simmons & Co's (the energy research outlet embedded within Piper Jaffray) John Daniel who, on May 22, said "our downgrade of FMSA earlier this year has clearly been the wrong call." Now that FMSA has returned 188 percent since Simmons' January 11 downgrade.

It's safe to say that the analysts recommendations of FMSA have been abysmal and Morgan Stanley's upgrade today smells of an effort to capture investment banking (side note: Morgan Stanley led FMSA's IPO offering, according to an October 3, 2014 press release).