Short and Medium-term Outlook
Our short article discussed our initial thoughts about KLX Energy Services' (KLXE) Q3 2025 performance a few days ago. KLX Energy sees Q4 holding up well, even with normal seasonality and year-end budget exhaustion. The company credits its steady outlook to market share gains, solid execution, and long-term value focus. Management notes early signs of market stabilization and rising gas basin activity, hinting at stronger demand in 2026. Margins should stay stable as cost discipline and efficiency gains continue to offset macro volatility. The company expects to benefit from growing natural gas demand, driven by new LNG projects and data center expansion.
Current Strategy and Drivers
KLX beat industry trends by smartly deploying assets, improving efficiency, and maintaining strict cost control. Strong performance in completions, accommodations, and flowback lifted quarterly revenue. The team managed white space effectively and stayed disciplined in a challenging market. Despite OPEC+ supply growth and weak rig counts, KLX’s broad footprint and customer base should keep performance steady.
Challenges and Strengths
KLX faced softer activity in the Rockies as completions, frac rentals, and coiled tubing work slowed. The Southwest region also weakened with lower demand in drilling, flowback, and rentals tied to Permian softness and customer M&A disruptions. Revenue in the Southwest fell 4% but still beat the 9% regional rig count decline.
Despite the slowdown, KLX’s execution outperformed market trends. Its broad service mix and operational flexibility helped cushion the impact of lower activity. Mid-Con and Northeast growth, tight fixed cost control, and lower SG&A from cost structure improvements, and reduced third-party spending led to margin expansion in Q3.
Relative Valuation
KLXE is currently trading at an EV/EBITDA multiple of 5.4x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is lower (4.7x).
KLXE's forward EV/EBITDA multiple contraction versus the current EV/EBITDA contrasts with its peers because its EBITDA is expected to decrease, while EBITDA is expected to increase for its peers in the next year. This typically results in a much lower EV/EBITDA multiple than its peers. The stock's EV/EBITDA multiple is lower than its peers' (NINE, PUMP, and LBRT) average. So, the stock is reasonably valued, with a negative bias, compared to its peers.
Final Commentary
KLX Energy expects Q4 to remain steady despite seasonality and budget exhaustion, with margins supported by cost control and efficiency gains. You can read how operators would react to a fall in crude oil price or a cost hike in our recent article. Management sees early signs of recovery, especially in gas basins, and expects stronger demand in 2026 as LNG and data center growth lift natural gas activity.
Operationally, KLX beat peers by deploying assets efficiently, managing white space, and keeping costs tight. While the Rockies and Southwest saw weaker activity, solid Mid-Con and Northeast growth, disciplined execution, and lower SG&A drove margin improvement in Q3. The stock appears reasonably valued, with a negative bias, compared to its peers.
