Increase to Fairmount Santrol's Fair Value Estimate

We are raising our fair value estimate for proppant supplier

While the announcement of the company’s fourth-quarter results, combined with the sharp drop in oil prices, sparked a large sell-off for the shares of all proppant suppliers, we don’t think the results merit a revision in our outlook for either Fairmount in particular or the proppant market as a whole. While the 5% uptick in the company’s average proppant selling price perhaps disappointed investors, the company noted that many of its pricing increases did not take effect until midway through the quarter. Management also noted that the company has achieved about a 15% cumulative pricing increase from the third-quarter trough through today, which is right in line with our expectations. The two key factors that will sustain higher frac sand pricing--full absorption of logistics capacity and the re-entry of higher-cost Northern White producers--have yet to play out.

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