Long Haul Water Volumes And Contracted Projects Will Support Stable Future Earnings

Catalysts

About WaterBridge Infrastructure

WaterBridge Infrastructure operates a large-scale produced water handling and transport network serving E&P operators in the Delaware Basin.

What are the underlying business or industry changes driving this perspective?

• Rising produced water volumes in the Delaware Basin, where water to oil ratios are among the highest in the U.S., are feeding into WaterBridge's more than 5 million barrels per day of handling capacity and 2,600 miles of pipeline. This can support volume driven revenue growth and higher adjusted EBITDA over time.
• Multi year infrastructure projects such as Kraken, Speedway Phase 1, and the early work on Speedway Phase 2 and the New Devon project are backed by long dated MVCs and contracts. This can support greater visibility on volumes and contribute to steadier revenue and cash flow.
• Customer demand for long haul and out of basin water solutions in New Mexico, paired with access to underutilized pore space through LandBridge and other landowners, is reinforcing WaterBridge's role as a flow assurance provider. This can support systemwide utilization and margin stability.
• Higher pricing on new contracts such as Kraken and Speedway compared with legacy mid $0.60 per barrel rates is already feeding into guidance that points to a 50% adjusted EBITDA margin in Q4 2025 and 2026 adjusted EBITDA of US$420 million to US$460 million. This indicates a positive mix shift for net margins and earnings quality.
• A disciplined capital allocation approach that prioritizes high return organic projects, keeps covenant net leverage around 3.3x with a goal of below 3x, and layers in a US$0.05 per share quarterly dividend and potential buybacks, can support free cash flow deployment, interest expense management, and ultimately earnings per share.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming WaterBridge Infrastructure's revenue will grow by 30.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.4% today to 5.3% in 3 years time.
• Analysts expect earnings to reach $73.1 million (and earnings per share of $0.38) by about May 2029, up from -$2.8 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $97.4 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 31.7x on those 2029 earnings, up from -511.3x today. This future PE is greater than the current PE for the US Energy Services industry at 27.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.93%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Large long term capital commitments to Speedway Phases 1 and 2, the New Devon project and other organic builds, alongside a 2026 CapEx guide of US$430 million to US$490 million and a recent US$1.425b senior notes issue, increase execution and cost overrun risk, which could pressure free cash flow, interest costs and future earnings if returns on these projects are weaker than expected.
• Management is targeting covenant net leverage around 3.3x with a goal below 3x, but is also open to further M&A and continued high return project spending. Any downturn in produced water volumes or pricing in the Delaware Basin could slow deleveraging and weigh on net margins and earnings.
• The business is heavily tied to long term produced water trends in the Delaware Basin and to a concentrated customer base. Weaker E&P activity, regulatory limits on water disposal or recycling shifts over the years could cap volume growth through the system and affect revenue and adjusted EBITDA.
• Management highlights rising rates on new contracts like Kraken and Speedway relative to legacy mid US$0.60 per barrel levels, which supports current margin expansion. Future competitive pressure or customer pushback on higher tariffs could limit pricing power and constrain net margin and earnings growth.
• The company is positioning for multi year growth with the oversubscribed Speedway Phase 1, strong interest in Phase 2, potential Phase 3 and an MVC backed Devon project starting in 2027. If these long term contracted volumes and high priced barrels materialize as planned, the share price could rise over time as revenue and earnings increase.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $32.0 for WaterBridge Infrastructure based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $26.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $1.4 billion, earnings will come to $73.1 million, and it would be trading on a PE ratio of 31.7x, assuming you use a discount rate of 7.9%.
• Given the current share price of $30.47, the analyst price target of $32.0 is 4.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.