Nearly double their previous target. GLTA
Canaccord Genuity’s Matthew Lee hiked his Hammond Power Solutions Inc. ) target to $167 from $85 with a “buy” rating. The average is $112.
“Hammond Power Solutions reported Q4 results last week, with revenue and EBITDA both above our estimates. Initially, we had concerns around declining sequential backlog, but we now believe that order growth has remained positive while improved capacity has driven down lead times. Management noted on the call that quotation activity remains robust, which portends order book strength for the year,” said Mr. Lee. “Based on the company’s current capacity, we expect Hammond to deliver 8-per-cent consolidated volume growth in the year, supplemented by a low-single-digit price increase starting in Q1. We have updated our model, accounting for higher growth and a revised adjusted EBITDA calculation methodology (removing the impact of LTIP valuation fluctuations). On our current numbers, HPS trades at 14 times NTM [next 12-month] EV/EBITDA.
“HPS’ 77-per-cent year-to-date upswing has caused us a moment of introspection regarding valuation. While Hammond should trade at a discount to multinational electrical peers (17 times), we believe that its recent crossing of the US$1-billion market cap mark has piqued the interest of U.S. investors providing another leg of support for equity appreciation. In combination with its outsized growth profile, improving profitability, and data centre exposure, we see a path for HPS to sustain a double-digit EBITDA multiple over the medium term. We have raised our valuation methodology from 8 times F25 EBITDA to 13 times, bringing our target to $167.00. From here, we believe the lion’s share of stock appreciation will come from the delivery of robust results rather than further multiple expansion.”