Atlas Energy Solutions: A New Star in the SmallCap 600 Index

Key Points

• Atlas Energy Solutions is the nation’s largest producer of proppants used in hydraulic fracking to extract oil and gas.
• Atlas Energy acquired competitor Hi-Crunch in March 2024 to become North America’s largest proppant supplier to oil and gas companies in the Permian Basin.
• Atlas Energy was added to the S&P 600 SmallCap index on November 26, 2024.

Atlas Energy Solutions Inc. NYSE: AESI is North America’s largest proppant producer used in hydraulic fracturing or "fracking" for oil and gas extraction. Fracking is the technique that allowed the United States to double its oil production over the last decade to become the world's largest oil producer. Atlas Energy produces and processes proppants, which are a combination of dry and damp soils in various mesh sizes.

The oil/energy sector company operates 12 proppant facilities producing up to 28 million tons across the Permian Basin and offers comprehensive last-mile logistics services. It primarily serves customers in the Permian Basin of West Texas and New Mexico, including Devon Energy Inc. NYSE: DVN and EOG Resources Inc. NYSE: EOG. Its competitors include Smart Sand Inc. (NASDAQ SND) and acquired competitor High-Crush Inc.

Atlas Energy was added to the S&P SmallCap 600 index on November 26, 2024. Donald Trump’s return to the White House is a major tailwind, as he fully supports fracking and drilling to lower energy prices.

The Controversy of Fracking

Hydraulic fracking is a controversial oil and gas extraction technique that involves injecting high-pressure fluid into subterranean rocks (shale), creating new fissures that allow the oil to flow out to the wellbore. The process can take three to six million gallons of water, which is mixed with proppants, often containing sand and chemicals.

The process makes it easier to collect oil and gas. However, it is also controversial due to the radioactive elements and toxic chemicals collected, disposed of, or even recycled. Some critics argue that fracking can cause earthquakes since it breaks up the rocks deep under the surface. However, President Trump has already acknowledged his complete backing of fracking with his "drill, baby, drill" statements, indicating he would increase fracking on federal lands to make America energy dominant.

Atlas Revenue Growth Surges From Acquisition

Atlas acquired competitor Hi-Crunch for $450 million, including its Permian Basin proppant production assets. The acquisition was completed on March 5, 2024, immediately adding to Atlas’s YoY revenue. Atlas reported Q3 2024 EPS of 18 cents, missing consensus estimates by 5 cents. Revenues rose 93.15% YoY to $304.43 million but still missed consensus estimates by $2.93 million. Total sales rose by $16.9 million, up by 6% sequentially. Product sales rose $17.1 million, up 13% sequentially. Sales volume rose 6 million tons, up 22% sequentially.

Net income was $3.9 million, with a 1% net income margin. Adjusted free cash flow was $58.7 million, representing a 19% adjusted free cash flow margin. The company had $253.6 million in total liquidity, comprised of $78.6 million in cash and cash equivalents, $74.8 million in its ABL facility, and $100 million under its Delayed Draw Term Loan Facility.

The Board of Directors declared an increased dividend of 24 cents per share, payable on November 14, to shareholders of record on November 7, 2024. During the quarter, the company bought back $200 million in stock.

Atlas Energy Solutions CEO John Turner commented, “Our third quarter results were impacted by higher operating expenses related to lingering expenses related to the Kermit feed system rebuild and our follow-on initiatives to improve our operational processes and systems to ensure that the productive capabilities of our key plants are optimized.”

Turner concluded, “Importantly, the commissioning of the Dune Express commenced earlier this month. Our focus is on ensuring that Atlas’ diversified network of mines and logistics solutions is optimized for the transformational Dune Express delivery system and our expected expansion of sales in 2025.”

AESI Stock Attempts a Cup and Handle Pattern

A cup and handle chart pattern is comprised of a swing-high cup lip line. The stock falls to a swing low and forms a rounding bottom as it stages a rally back to retest the cup lip line. The stock gets rejected and falls to a higher low, forming a higher rounding bottom, staging another rally to test the cup lip line to either breakout above it or deflect off it.

AESI stock formed the cup lip line at $24.40 before falling to a swing low of $15.55 to form a rounding bottom, staging a rally back up to retest the cup lip line only to reject to another swing low at $17.51. AESI rallied back up, forming a handle as it retests the $24.40 cup lip line again for either a breakout or a triple top on the rejection. The daily anchored VWAP support is at $21.07. The daily RSI is flat around the 59-band. Fibonacci (Fib) pullback support levels are at $21.20, $19.04, $17.51, and $16.59.

PSTG’s average consensus price target is $24.44, implying a 3.71% upside and its highest analyst price target sits at $28.00. The stock has eight analysts' Buy ratings and four Hold ratings. The stock has a 16.30% short interest.

Actionable Options Strategies: Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered call at upside Fib levels executes a wheel strategy for income in addition to the 4.54% annual dividend yield.