Natural gas drilling equipment and services are in high demand when U.S. and international drillers are actively producing more gas. That’s behind this company’s 41.5% revenue and 49.7% earnings jump in the quarter.
Still, low energy prices mean the company’s shares are available at just 13.8 times its forecast 2019 earnings even as U.S. and international drilling remain strong.
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ENERFLEX LTD. $17.24 (Toronto symbol EFX; TSINetwork Rating: Extra Risk) (403-387-6377; www.enerflex.com; Shares outstanding: 88.8 million; Market cap: $1.5 billion; Dividend yield: 2.4%) rents and sells equipment and services for natural gas production. That includes refrigeration gear, power generators and processing plants.
The company’s revenue jumped 41.5% in the quarter ended September 30, 2018, to $445.8 million from $315.0 million a year earlier. Stronger gas production in the U.S. more than offset weakness in Canada. Earnings rose 49.7%, to $37.7 million, or $0.43 a share, from $25.2 million, or $0.28.
Enerflex’s balance sheet is sound: its debt of $426.3 million is a reasonable 28% of its market cap, and it holds $267.1 million in cash.
New orders remain very strong, especially from U.S. and international customers, who have begun to increase their gas production. On September 30, 2018, Enerflex’s order backlog was $1.07 billion—up 59.5% from $670.8 million at the end of 2017.
The company’s outlook is strong, based on continued strength in the U.S. natural gas industry and several large opportunities internationally. Overall, Enerflex’s prospects are tied more to rapidly expanding global natural gas production, rather than natural gas prices.
The stock currently trades at 13.8 times the forecast 2019 earnings per share of $1.25. With the January 2018 payment, the company will raise its quarterly dividend by 10.5%, to $0.105 from $0.095. The $0.42 annualized dividend gives it a 2.4% yield.
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