Is Enservco Stock A Buy?

Enservco Corp (NYSE:ENSV) is an oil and gas supplier that delivers crucial services and supplies to any job site. It’s a premiere provider of support drilling, maintenance, and services like frac water heating, hot oiling, and acidizing. This diverse service offering gives it multiple revenue streams and helped it thrive in spite of a reduction in transportation globally in the recent past.

Now that travel is resuming and the global economy is on its way to recovery, is Enservco stock a buy?

Although diversified in the oil and gas exploration niche, that’s the only industry it serves. This ties the company’s fate directly to the oil industry, which ultimately crashed the stock into penny stock territory (technically any stock under $5 per share is a penny stock) with the risk of being delisted.

Despite what few headwinds it could be facing, the company is now operating under a presidency that’s much less friendly to the oil industry. That means it’s facing an uphill battle, even as oil production resumes and the company’s revenues get back on track.

However, with such a tiny market cap, this could be a great entry-level investment with potential upside for investors. It’s time to dip a stick into Enservco to see whether it has the fuel to enrich investors’ portfolios.

Enservco Claims To Be A Market Leader

Enservco considers itself a market leader, but it’s relatively small for the oil industry. The company’s total 2020 revenue was $15.7 million, and it has a market capitalization of under $20 million. This means it’s a small-cap company with a lot of room to grow, especially as the oil industry recovers.

As a third-party vendor for a necessary utility business, Enservco is comparable to airline parts and plane suppliers like Boeing Co (NYSE:BA) and General Electric Company (NYSE:GE). The company will receive tailwinds as soon as business travel and other crucial pieces of the economy recover.

Enservco’s biggest obstacle remains the reduction in transport stemming from international travel restrictions. As long as the travel industry is shut down, oil production slows with it.

The company should continue to grow its top line as the market itself grows and more drilling completion, production, and maintenance support is needed. It is the market leader in its diversified niches of specialized well-site services.

And because it services both the conventional and unconventional oil and gas industries, Enservco has decent protection from competition.

Does Enservco Have A Competitive Lead?

The biggest moat Enservco has is the prohibitively high cost of entry into the market. It has established partnerships and a wide network that keeps it sheltered from ambitious upstarts.

Its assets include industrial property, machinery, and distribution that can’t easily be obtained. Many of the chemicals and other products used require special licensing, training, etc. Because of this, cost alone can keep new companies from entering the market.

But the business still needs to optimize efficiencies to keep operating costs in check if it wants to maintain a competitive price. This is because it’s only the market leader in the United States. Leaders and rivals across the globe could still elbow into its geographic territory.

The continental U.S. also only has a set limit of oil and gas reserves. This means there are only so many well sites that will be set up within its borders. Oil and gas companies aren’t staying within the U.S. – they negotiate to operate wells across the world.

It’s this global aspect, along with OPEC’s wishes to control oil prices, that could create a growth ceiling. Of course, the move to more sustainable green energy initiatives also limits the long-term consumer need for oil and gas.

We’re a long way from fossil fuels being completely eliminated as a fuel, but it’s a path leading companies are increasingly working toward. Savvy investors know to look at revenue opportunities as a reason to invest, so let’s analyze Enservco’s revenue growth.

Is Enservco Growing Revenues?

You typically want to see growing revenues if you’re going to invest in a company. Unfortunately, Enservco revenues are on a downward trend from the pandemic. Full-year revenue of $15.7 million in 2020 is a massive year-over-year decrease from the $43 million made in 2019. However, it may not be all bad news.

This decline was caused by lower commodity prices – the pandemic crashed domestic oil prices into the negative for the first time in history. Oil producers were stuck in the position of paying to unload and store excess stockpiles as worldwide municipal quarantine and lockdown orders slowed traffic to a crawl across the board.

Airlines, cruises, and public transportation were hit hard by the pandemic, and Enservco suffered as North American rigs were deactivated in response. This cut the company’s production services revenue nearly in half, and that’s not even the worse of it.

Completion services revenue dove from $28.3 million in 2019 down to $8.0 million in 2020. Pandemic market conditions brutalized this company, and it struggled to stay afloat. However, there’s good news as well.

What Rate Are Enserveco Earnings Growing?

Although its revenues shrank, Enservco did manage to reduce operating expenses from $46.6 million in 2019 to $28.4 million in 2020. This represents a 39 percent decrease and, while also attributable to the pandemic shutting down many oil operations, also points to the company’s internal measures to reduce expenses and lower costs.

The company also restructured debt to keep 2020’s net loss at -$2.5 million, which equates to -$0.60 per diluted share. This is much better than the -$7.7 million loss, or -$2.06 per share, it was hit with in 2019.

One of the company’s biggest markets is in frac water heating, and that could be in danger under the Biden administration. The liberal-leaning environmental policies already impacted several pipeline projects, and fracking is a controversial practice among environmentalists.

However, the company’s capital raises and debt restructuring put it in a strong financial position to navigate the decade ahead. It raised $12.5 million from equity offerings over the past six months, which provides the working capital to pursue whatever opportunities it needs to pivot to and remain liquid.

Its fate ultimately lies in the hands of the management team though.

Enservco Management Quality

The pandemic also sparked a change in leadership. Enservco is based in Longmont, Colorado and is led by Chairman and CEO Rich Murphy as of September 2020.

He’s also a managing partner at Cross River Partners and the Founding Director and Board Member of MRI Holdings Corp, a restaurant holding company that includes brands like Casa Ole and Uberrito.

Murphy has 20 years of experience and should do well with steering the company through the rough years ahead. Thankfully, it’s facing some headwinds.

Increasing Global Tensions Benefit Enservco

OPEC is doing its best to manage global oil prices, but they struggled for over a year past the pandemic. Some analysts believe the U.S. will never again reach pre-pandemic production of 13 million barrels per day. And Iran can now reenter the market now that the U.S. removed its nuclear sanctions on the country.

However, Enservco will have plenty of business moving forward, as decommissioned and recommissioned oil wells will require servicing. All of the fighting over oil will inevitably benefit this company and its investors over the next ten years.

Is Enservco Stock a Buy? Conclusion

Enservco is a U.S. oil well servicing company that faced a lot of obstacles in recent years that line it up for future success. The oil industry took a beating as prices dropped into the negative, and this third-party supplier was hit in the crossfire. And a new White House administration is pushing anti-oil and pro-green energy initiatives.

But the halting of oil production is the problem of the oil producers. Enservco services the equipment, and it’s going to benefit from all the red tape. As job sites and machinery are shut down, moved around, and stored, the company has a lot of work ahead of it, even if it’s competing for smaller payouts.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.