Canaccord Canaccord analyst Yuri Lynk is curbing his enthusiasm for Badger Infrastructure Solutions Ltd. ahead of the company’s second quarter results.
He cut his price target to C$55 from C$60, but reiterated a “buy” rating.
“We are moderating our Q2 expectations as we believe the quarter was impacted by continued weakness in Canada and, to a lesser extent, project delays in the U.S.,” Mr. Lynk said. “As a result of these short-term headwinds, we expect 8% revenue growth in 2024 before recovering to 12% in 2025, which is more in line with the company’s 3-4 year targets calling for a 12-14% compounded annual growth rate from 2023.”
“In our view, Badger enjoys one of the best organic growth profiles in the capital goods sector backstopped by a supportive macro backdrop for hydrovac excavation with secular growth drivers that include infrastructure renewal and expansion, the energy transition, and the trend towards safe digging. As followers of this stock over the years know, however, Badger’s growth path does not follow a straight line. We expect Q2/2024 results to represent another kink in the road,” he said.
The Canaccord analyst did add, however, that the headwinds facing the company is reflected in its valuation.
“Badger trades at 17x 2024E EPS vs. peers at 20x, including Federal Signal at 27x, and its 19x 10-year average. We set our target price by applying a 17x multiple to our 2025 EPS estimate converted to CAD at US$0.73,” he said.