A disconnect surrounding the company's EBITDA multiple is discussed in a Raymond James report.
In an Aug. 20 research note, analyst Pavel Molchanov reported that Raymond James upgraded its recommendation on TPI Composites Inc. (TPIC:NASDAQ) to Strong Buy from Outperform, "the first time we have done so since its initial public offering in 2016."
TPI is currently trading at around $17.69 per share, which compares to Raymond James' target price on it of $32 per share. The stock is down around 29% year to date, but the clean tech index is up 38% during that same period.
This is the case despite the Arizona-based company accomplishing "the rare feat of double-digit, organic topline growth every year since 2012," and becoming a $1.5 billion topline enterprise," described Molchanov.
TPI stock rerated to a 4.7x EBITDA multiple, which is its lowest ever and seemingly "overly beaten down," Molchanov highlighted, suggesting that margin risk is fully baked in. Yes, inherent in the company's business model are production line transitions, but the resulting valuation haircut seems too high, the analyst noted.
TPI "should not be trading like a mature cyclical business," wrote Molchanov. This is especially the case because TPI has begun to diversify its revenue sources by moving into manufacturing composites for electric vehicles, now buses and potentially trucks in the future, and these efforts are still early stage. For example, only 9% of revenue in Q2/19 came from this other area. "Given where the stock is, we look at expansion in electric vehicles as an essentially free option," he added.
In conclusion, Molchanov indicated that Raymond James, accounting for TPI's expected growth in the wind and the electric vehicles market, estimated the energy company's revenue will increase by an average of 10–15% annually and, thus, potentially double EBITDA growth.
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Disclosures from Raymond James, TPI Composites Inc., August 20, 2019
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst Pavel Molchanov, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
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Raymond James & Associates, Inc. makes a market in the shares of TPI Composites, Inc..
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