Industry Outlook
Our short article discussed our initial thoughts about KLX Energy Services' (KLXE) Q1 2026 performance a few days ago. KLXE’s management views that the volatile but constructive oil prices are supporting improved operator sentiment and activity discussions. This holds true for the Permian and other oil-focused basins. The company is already seeing larger operators accelerate DUC completions while independents pull forward activity in response to higher spot prices. On the gas side, some Haynesville operators remain cautious near mid-$2 gas prices, although management still expects longer-term strength in gas-weighted basins.
Q2 Outlook
KLX expects activity in the Rockies to improve sequentially in Q2 as winter-related disruptions ease across all product service lines. The Southwest remained soft during Q1 due to lower Permian rig activity and delayed completion programs. The company’s revenue per average operating rig increased by 1% in Q1 a year ago, although EBITDA per rig declined due to revenue mix shifts. Management expects revenue per rig to exceed by 15% in Q2, a level that has historically supported strong margins.
However, management said Permian sentiment has improved heading into Q2, particularly around completions and DUC activity. The company also expects stronger second-half activity from both large blue-chip operators demanding higher-spec equipment and smaller independent operators increasing activity.
Q2 and 2H 2026 Forecast
KLX expects Q2 revenue between $162 million and $172 million, with the midpoint up 5% year over year and $22 million above Q1 2026. Management expects the Northeast/Mid-Con and Rockies to drive improvement, while Permian activity gradually stabilizes.
The company also said Q3 has historically been its strongest quarter, and current customer commentary points to a robust second half of 2026. KLX expects smaller independents and private operators to become a key driver of incremental activity later this year. However, management wants more visibility on margins, pricing, and mix before updating its FY2026 outlook.
Relative Valuation
KLXE is currently trading at an EV/EBITDA multiple of 5.7x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is lower (4.8x).
KLXE's forward EV/EBITDA multiple contraction versus the current EV/EBITDA is much steeper than its peers because its EBITDA is expected to decrease more sharply than its peers in the next year. This typically results in a higher EV/EBITDA multiple than its peers. The stock's EV/EBITDA multiple is lower than its peers' (CLB, PUMP, and LBRT) average of 10.8x. So, the stock is undervalued compared to its peers.
Final Commentary
KLX views that constructive oil prices are improving operator sentiment and supporting stronger DUC and completion activity, particularly in oil-weighted basins. Management expects Q2 activity to improve as winter-related disruptions ease in the Rockies and Permian sentiment strengthens. The company also expects revenue per operating rig to rise meaningfully in Q2, supporting stronger margins.
KLX forecasts higher Q2 revenue, driven by improvements in the Northeast/Mid-Con, Rockies, and stabilizing Permian activity. Management also expects a stronger second half of 2026 as private and independent operators increase activity levels. The stock is relatively undervalued compared to its peers.
