|Market Growth LT||null|
|Market Growth ST||F|
Investors Betting on a Turnaround Must Be Cautious as Company's Growth Record is Still Very Weak
C&J Energy Services,'s sales grew moderately last quarter to $276.05 million, a 15.48% improvement from its sales of $239.05 million reported for the year earlier period. Its 12-month trailing revenue was $0.00 million, which we're unable to compare to 12-month trailing sales from either three or two years ago because of a lack of data. The company also reported in its latest earnings announcement a year-over-year drop in profits. Our measure of long term profit growth, which usually compares full year (12-month trailing) net income growth over a three year period was, in C&J Energy Services,'s case, limited to a two year comparison for a lack of sufficient publicly available financials going far enough back. MISSED CASE The company's ongoing margin contraction accelerated during its most recent quarter in which its EBITDA, operating and net margins fell an average of -32.43% from the year earlier period.
The company disappointed investors with a very negative earnings surprise on May 02, 2013, missing analysts' estimates by -19.30%, causing the stock to fall -6.27% in reaction to the news. Despite this negative report, its earnings surprise record continues to be positive, having exceeded analysts' estimates by 0.12%, on average, in the last six reported quarters.
|Price/Cash Flow Ratio||A+|
Company's Shares Are Attractively Priced Considering the Strength of its Overall Fundamentals
C&J Energy Services,'s stock is trading at at 5.69 times the company's 12-month trailing earnings per share, which represents a 90.68% discount to the company's "optimum" P/E ratio of 132.62; we calculate this ratio based on the company's two-year EPS growth rate based on rolling periods of 12-month trailing earnings. In a few cases, such as C&J Energy Services,, a single quarterly EPS value that is much higher than its ongoing earnings trend skews the growth rate distorting our optimum P/E ratio. According to our calculation the company's earnings per share have grown at a 124.27% annualized rate in the last two years compared to 0.00% and 0.00% in the last three and five years respectively. This growth has resulted in strong financial performance, evidenced by the company's Profitability grade. For this to continue, it must reverse its recent margin slide soon. Currently the stock also has a forward P/E of 12.37, which interestingly enough is higher than its trailing P/E but lower than the S&P 500's forward P/E of 15.20. Investors therefore see more value in the company's future earnings but not as much as they see in the market in general; coupled with the company's strong fundamentals, this situation could represent an interesting but risky opportunity, meaning short term volatility with the possibility of handsome returns in the long term.
Investors are currently not putting too much value in C&J Energy Services,'s future growth prospects based on its price to book ratio of 1.68. This low ratio could be partly justified by the fact that intangible assets such as goodwill represent a substantial 50.12% of the company's total stockholders' equity. When those assets are subtracted from its total book value, the price to book ratio jumps to 3.36. At the current price of $19.31 the stock is valued at 4.29 times the cash flow generated by the company in the last four quarters, or $4.50 per share; this values the company's ongoing business very favorably considering the strength of its overall fundamentals. Its shares also trade at 0.91 times its trailing 12-month sales, a small 81.00% discount to the Oilfield Services/Equipment industry average price to sales ratio of 4.77. Finally, from a value perspective, we look at how much bigger the company's market capitalization is than its latest operating profits after subtracting taxes. Based on this measure C&J Energy Services,'s $1.04 billion market cap is an acceptable valuation, representing a modest multiple of 24.88 times its latest quarterly net income plus depreciation.
|Return on Equity||B+|
|Quality of Revenues||A+|
Profitability Record Is Excellent Across the Board Suggesting a Very Well Managed Operation
C&J Energy Services,'s profitability indicators are pretty strong across the board, with strong returns on shareholder equity, industry-beating operating margins and a very healthy net profit margin. The $158.12 million in net profits earned by the company in the last 12 months account for 13.77% of all revenue booked in the period. Operating income during that same period accounted for 21.54% of sales, 51.66% higher than the average operating margin for the Oilfield Services/Equipment industry, which was 13.08%. Based on its trailing 12-month earnings, C&J Energy Services, return on equity of 24.96% is a very strong indicator of profitability and a positive reflection on the company's management efficiency. However, it represents a decline from the year earlier period's return on equity of 40.64%, possibly spelling a slowdown in the company's business.
In spite of this recent downturn and given the still-strong performance by the company its leverage has plenty of room to grow considering its total debt is less than a third of its total equity. The company's capital structure is very healthy with long term debt accounting for only 19.47% of total capital. C&J Energy Services,'s core operations, as measured by the company's EBITDA, have generated $302.93 million in earnings over the last twelve months, a modest -4.49% decline from the $317.19 million earned in the equivalent period ended a year ago. EBITDA is used as a way of measuring core earnings since it includes money earned in its operations such as interest expense, income taxes paid and depreciation and amortization, both of which are non-cash charges.
|Cash Flow Growth||F|
|Debt/Cash Flow Ratio||A+|
|Interest Cov. Capacity||A+|
Company's Cash Flow Indicators Are Solid Across the Board but Offer Some Room for Improvement
C&J Energy Services,'s cash flow declined significantly last quarter to $62.32 million, 10.31% lower than the year earlier quarterly cash flow of $69.49 million. What's more important and worth highlighting is the fact that up to the most recent quarter the company's twelve month trailing cash flow was growing very healthily, up 11.76% compared to the same period ended a year before. This marks a sharp slowdown in the company's business environment and is likely to put considerable pressure on its margins. The company's liquidity is not only remarkable but the current amount of debt it carries relative to the cash flow it generates from tis operations is even lower now than it was a year ago. Its net debt (total debt minus cash on hand) at the end of its last quarter was $131.07 million, only 2.30 times bigger than its $57.04 million in EBITDA. This ratio fell by an impressive 347.22% from the year earlier period, when EBITDA was $84.13 million. This reduction means the company is very well capitalized and has room to expand its leverage if necessary to pursue new growth opportunities without unduly impairing its liquidity. **
An important indicator of management efficiency used by MarketGrader is Economic Value Added, or EVA, which measures each company's true return to shareholders after accounting not only for the cost of running the business (operating costs) but also the cost of the capital it employs. By measuring the real cost of capital, both equity and debt, EVA measures the creation of true economic profit. In this case C&J Energy Services, had $786.65 million in invested capital in its most recent quarter, a combination of both equity and long term debt. However, the company's weighted cost of equity of 6.49% is much larger than the weighted cost of debt, which is 0.52%. When combined, the two result in a total cost of capital of 7.01%, quite low compared to the company's total return on invested capital of 31.45% based on 12-month trailing operating income. The result is an excellent economic value added of 24.43%, a very high return to investors after all capital costs are covered. C&J Energy Services, does not pay a dividend and hasn't done so within at least the last five years.