ATBATB Capital Markets analyst Waqar Syed downgraded CES Energy Solutions Corp. to “sector perform” from “outperform” on valuation concerns. “In our view, CEU’s strong 2024 stock performance has been a function of robust operational execution including meaningful margin and market share expansion across most business lines, combined with significant trading multiple expansions,” he said. “Given our view to a tepid North American activity environment in 2025, and our view that further margin, market share, and/or multiple expansion is likely to be less pronounced in 2025 vs 2024, we believe CEU’s ability to outperform in 2025 is more challenged relative to 2024, and compared to peers that continue to trade at or below the bottom-end of historical trading ranges and many with lower leverage to US activity levels. We believe stronger upside potential for CEU could emerge if it is able to gain traction in the offshore production chemicals market through 2025 – a sizable, high-margin, market opportunity that CEU has yet to meaningfully penetrate. CEU trades at 6.2 times 2025 estimated EV/EBITDAS with a 9-per-cent FCF yield. Our $11.00 price target is based on 7.0 times 2025 EV/EBITDAS and supported by our three-stage DCF analysis using a 10.5-per-cent discount rate and a 1.5-per-cent terminal growth rate. Despite our reduced rating, we continue to view CEU as a premium, low capital intensity, high free cash generating business that is likely to produce healthy returns for long-term investors, though we believe these returns are likely to be lower than peers that have yet to experience meaningful multiple expansion.”
His target increased by $1 to $11. The average is $10.59.