Baird, a financial services firm, adjusted its outlook on Custom Truck One Source (NYSE:CTOS), reducing the price target to $6.00 from the previous $7.00. Despite this change, Baird maintained an Outperform rating on the company's stock.
The adjustment in price target reflects a revision of estimates for CTOS, specifically within the Truck & Equipment Sales (TES) segment. Baird's analysis indicates a need to align expectations with the current sales order backlog. While the 2024 estimates for CTOS remain unaffected, the 2025 TES revenue projections have been moderated due to a decrease in backlog levels.
According to Baird's assessment, the TES backlog now represents 5.6 months of the last twelve months (LTM) TES sales revenue as of the second quarter of 2024. This figure marks a significant decline from the 12.6 months peak observed in the first quarter of 2023 and a drop from 8.3 months at the end of 2023.
The reduction in backlog is attributed to the normalization of previously extended delivery times, which had been prolonged due to supply chain pressures. This normalization suggests that Custom Truck One Source has overcome some of the supply chain challenges that affected its operations in the past year.
Baird's revised price target and maintained Outperform rating indicate a continued positive outlook for Custom Truck One Source, albeit with more conservative revenue expectations for the TES segment in the coming year.
Custom Truck One Source reported significant developments including a downward revision of its full-year guidance due to market challenges such as supply chain disruptions and high-interest rates. The company's EBITDA of $80.1 million fell short of estimates from DA Davidson and the consensus. Despite these challenges, sequential revenue growth and adjusted EBITDA growth were observed.
Custom Truck One Source also expanded its credit facility from $750 million to $950 million, providing the company with enhanced financial flexibility to support its operations and strategic initiatives. Rahman D’Argenio, a board member and designee of Energy Capital Partners, resigned from the company, leading to a decrease in the board size from eleven to ten members.
Following these developments, Oppenheimer and DA Davidson adjusted their price targets for Custom Truck One Source, influenced by the company's recent earnings release and challenges in its Transmission business due to project delays and supply-chain issues.
However, despite the current headwinds, the company remains optimistic about its future, projecting improvements in the latter half of the year and a focus on generating positive free cash flow for 2024.
InvestingPro Insights
In light of Baird's recent analysis of Custom Truck One Source (NYSE:CTOS), InvestingPro data reveals additional context that may influence investor perspectives. With a market capitalization of approximately $989.72 million, CTOS is navigating a challenging financial landscape, as evidenced by a negative P/E ratio of -74.82. This figure aligns with the InvestingPro Tip that CTOS operates with a significant debt burden, which is an important consideration for investors.
Despite the headwinds, management's aggressive share buyback activity, as noted in another InvestingPro Tip, may reflect a degree of confidence in the company's future prospects. However, it's worth noting that analysts have revised their earnings downwards for the upcoming period, and the consensus is that CTOS may not achieve profitability this year. The company's stock performance has reflected these concerns, with a 6-month price total return of -32.85%.
For investors seeking a deeper dive into CTOS's financial health, additional InvestingPro Tips are available, offering insights into valuation, cash flow yield, and dividend policies. As of now, there are 9 more InvestingPro Tips listed for Custom Truck One Source, which can provide further guidance for those considering an investment in the company.
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