Select Water Solutions will be a winner thanks to its recent business changes, according to Citi. The company, which provides sustainable water services for the oil and gas industry, recently began a strategic pivot toward its water infrastructure business, which is focused on the management and recycling of produced water. Select Water’s largest business line is water services, “which is more closely tied to volatile and cyclical completions activity,” and the company’s move to deemphasize that space “is supported by energy industry trends,” according to Citi analyst Scott Gruber. He is bullish that these changes will result in higher and more stable margins. Gruber upgraded shares to buy from neutral. He also lifted his price target to $13 from $9, implying 40% upside from Wednesday’s close. “Through a mixture of recent M & A and organic growth, we believe WTTR is well positioned to execute on their strategic shift and see upside ahead for the stock,” Gruber wrote in a Thursday note. The analyst noted that Select Water Solutions is currently trading at a discount to its peers. The company is currently trading at a little over four times its earnings before interest, taxes, depreciation and amortization over the next 12 months, while its competitor Aris Water Solutions is trading near a 6.5 multiple, he added. “With WTTR’s Infrastructure growth being accelerated by M & A, the proper blended multiple on 2025E appears to be ~4.7x, above the stock’s current ~4.1x. Further, the downside risk to slowing demand for frac water appears to have passed with higher oil prices,” Gruber said.
