Zacks Initiates Coverage of Koil Energy With Neutral Recommendation

Zacks Investment Research has recently initiated coverage of Koil Energy Solutions, Inc. KLNG with a Neutral recommendation, reflecting a balanced outlook as the subsea equipment and services provider builds backlog visibility while navigating margin and operational pressures.

Koil Energy, headquartered in Houston, TX, provides equipment and support services to offshore energy operators worldwide. The company designs, manufactures and installs subsea distribution systems, including its flagship Loose Steel Tube Flying Lead, which is engineered to improve installation efficiency and lower total project costs.

A central positive driver is improving backlog visibility into 2026. Koil Energy has secured several subsea awards clustered across late 2025 and early 2026, with deliveries extending through the third quarter of 2026. Recent wins include steel tube flying leads, an integrated subsea distribution system with an installation option and a manufacturing contract tied to a vessel carousel modification. The defined delivery schedules support revenue realization over the next several quarters and enhance planning visibility, as highlighted by the research report.

The company’s focus on subsea tie-back projects aligns with operators’ preference for capital-efficient developments that leverage existing infrastructure. Such projects typically feature shorter development cycles and faster paths to production. A recent Gulf of America award supporting a brownfield expansion reinforces Koil Energy’s role in this segment, which may provide a steady stream of opportunities as operators prioritize incremental output over large-scale greenfield projects.

Revenue mix is also evolving in a way that may support greater stability. For the first nine months of 2025, services represented 45% of revenues compared with 29% in the prior-year period, and service revenues increased 33% year over year in the third quarter.

Geographic and market expansion add another layer of opportunity. Koil Energy has established a presence in Brazil, including localized fabrication and equipment rental, and has participated in offshore wind cable spooling services. These initiatives broaden the company’s footprint beyond its traditional base and diversify exposure across offshore energy end markets.

At the same time, profitability has come under pressure, as outlined in the report. Although revenues increased year over year in the third quarter of 2025, gross margin declined to 32% from 40%, reflecting a higher mix of lower-margin services and increased overhead, including costs associated with international expansion. A $0.6 million allowance for credit losses tied to a U.K. customer dispute also weighed on results, contributing to operating losses and raising concerns about earnings quality.

Financial structure and governance considerations add complexity. The company utilizes a recourse-based factoring facility with relatively high discount rates, which can elevate financing costs and introduce balance sheet risk if receivables are delayed. In addition, management has disclosed a material weakness in internal controls over financial reporting that remains under remediation.

Koil Energy’s shares have posted solid gains in recent months. Valuation reflects a mix of discounted sales-based metrics and elevated earnings-based multiples, suggesting expectations for better execution while reinforcing a balanced risk-reward profile.

Overall, Koil Energy’s improving backlog visibility, expanding services mix and geographic diversification must be balanced against ongoing margin pressure, litigation-related uncertainty and internal control remediation as the company works to translate project momentum into consistent profitability. For more detailed insights and analysis, read the full Zacks Investment Research report on KLNG.

Read the full Research Report on Koil Energy here>>>

Note: Our initiation of coverage on Koil Energy, which has a modest market capitalization of $27.7 million, aims to equip investors with the information needed to make informed decisions in this promising but inherently risky segment of the market.

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Koil Energy Solutions, Inc. (KLNG): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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