Liberty Energy Earnings: Profit Margins Top 26% as Strong Frac Demand Supports High Pricing

Liberty Energy LBRT posted solid first-quarter results as elevated frac spread utilization in North America continues to push pricing power in favor of pressure pumpers. Our no-moat rating and $17 per share fair value estimate are unchanged following results.

In our view, most of Liberty’s first-quarter performance is attributable to favorable pricing rather than active frac spread count. Estimates from Rystad Energy indicate Liberty operated 39 active rigs, four less than last quarter. Yet, first-quarter revenue increased 3% sequentially, implying service prices jumped 15% by our estimate. Pricing gains continue to boost profitability as well. For the third consecutive quarter, firmwide adjusted EBITDA margin increased 200 basis points to 26%, well above the firm’s prepandemic average in the high teens.

We anticipate a steady market for Liberty over the next few quarters. Management indicated the majority of frac services are geared toward maintaining current levels of oil production, implying a material decrease in utilization is unlikely in the near term. Pressure pumping demand will likely remain high enough for Liberty and peers to maintain pricing power, but we don’t foresee much opportunity for further significant pricing gains with the existing industry fleet. In our view, pricing premiums will derive from upgrades to electric frac spreads and dual-fuel capable equipment as the industry gradually retires diesel-powered frac spreads. Liberty deployed its first digiFleet with electric pumps this quarter, with a second unit primed for deployment in the second quarter. Industry fleet upgrades will generally occur at a slow but steady pace as pressure pumpers seek to meet customer demand while avoiding the overexuberant additions seen in the early 2010s. In our view, strong operator demand coupled with thoughtful capacity investment will support a steady market moving forward, allowing Liberty to maintain its level of profitability through 2023 and likely beyond.