S&P upgrades CES Energy Solutions outlook on profitability

S&P Global Ratings has upgraded its outlook for CES Energy Solutions Corp. (TSX:CEU), moving from a 'stable' to a 'positive' outlook on Thursday. The company's credit rating remains at 'B+' for both its issuer and issue-level ratings. The Toronto-based firm reported record revenue of C$2.5 billion and adjusted EBITDA margins of 15.1% in 2025, despite a decline in industry rig counts in the U.S. and Canada.

CES holds a 40% market share in the Western Canada Sedimentary Basin and around 40% in the Permian Basin for its drilling fluids segment. The ratings firm anticipates CES to generate between C$200 million and C$220 million in adjusted free operating cash flow for 2026 and 2027. This is supported by annual capital expenditures of C$100 million to C$120 million, or 3% to 5% of revenue.

The positive outlook reflects S&P's conviction that CES will continue to grow its North American business with stable-to-improving margins while generating robust cash flow through its asset-light business model. The firm expects funds from operations to debt to average around 65% for 2026-2027, with a debt to EBITDA ratio of approximately 1.3x.

S&P projects gradual revenue growth through 2027, driven by recent market share gains, with adjusted EBITDA margins of 14% to 16%. Canada accounts for roughly 34% of CES's revenue, with strong activity levels expected due to increased oil sands production and elevated drilling activity in the Montney region.