On Tuesday, Evercore ISI increased its price target on Aris Water Solutions Inc (NYSE:ARIS) shares to $20.00, up from the previous $16.00, while maintaining an Outperform rating.
The firm highlighted Aris Water Solutions' recent decision to raise its quarterly dividend by 17% to 10.5 cents. Aris Water Solutions specializes in full-cycle water handling and recycling solutions, operating an integrated pipeline network spanning approximately 765 miles.
The company boasts a produced water handling capacity of 1,750 thousand barrels of water per day (kbwpd) and a water recycling capacity of 1,500 kbwpd.
The company's strong performance in the first quarter was underscored by a 12% sequential increase in adjusted operating margin per barrel, which hit a record high. The improvement in margins is attributed to cost reduction initiatives, electrification efforts, and annual Consumer Price Index (CPI) escalators in its contracts.
Additionally, first-quarter margins were positively impacted by an increase in contracted volumes, skim oil, and postponed well maintenance costs.
Aris Water Solutions has demonstrated solid execution and margin improvement, coupled with a significant 40% reduction in capital expenditures for 2024.
These factors have put the company on a trajectory toward potentially higher returns. The firm's confidence in the company's ability to boost its free cash flow is reflected in the recent dividend increase.
Furthermore, Aris Water Solutions has raised the lower end of its 2024 adjusted EBITDA guidance to $185-200 million, following the favorable outlook for the rest of the year based on robust first-quarter results.
The company's capital expenditure is expected to remain between $85-105 million for the year. At the close of the first quarter, the company reported a leverage ratio of 2.15x debt to adjusted EBITDA, which is below its target range of 2.5-3.5x.
The firm's report concluded by reiterating its Outperform rating on Aris Water Solutions, emphasizing the company's organic growth, strategic new agreements, and the effective leveraging of its system to enhance capital efficiency.
InvestingPro Insights
Recent analysis from InvestingPro highlights several key metrics and insights for Aris Water Solutions Inc (NYSE:ARIS) that align with the company's positive trajectory as noted by Evercore ISI. With a strong gross profit margin of 57.3% for the last twelve months as of Q1 2024, Aris Water Solutions stands out for its impressive ability to manage costs and generate earnings. This financial health is further supported by a robust revenue growth of 18.25% over the same period, indicating a solid expansion in the company's operations.
InvestingPro Tips suggest that Aris Water Solutions is expected to see net income growth this year, which is consistent with the firm's raised dividend and improved EBITDA guidance. Furthermore, the company's stock has demonstrated a strong return over the last year, with a price total return of 86.3%, showcasing investor confidence and market performance. With additional insights available, including 10 more InvestingPro Tips, readers can deepen their understanding of Aris Water Solutions' financial landscape by visiting https://www.investing.com/pro/ARIS. To enhance your investment research, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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