Pason Systems gets “Top Pick” rating from Industrial Alliance analyst Li

After a better than expected second quarter, Industrial Alliance Securities analyst Steve Li has upgraded Pason Systems (TSX:PSI) to his “Top Pick” rating.

Last Wednesday, Pason reported its Q2, 2014 results. The company earned $17.6-million on revenue of $103.9-million, reversing a loss of $39.3-million in the same period last year.

CEO Marcel Kessler noted that the results came against seasonal trends.

“The second quarter is usually the weakest for Pason due to the seasonality of Canadian drilling activity,” he said. However, drilling industry days in Canada were up 35 per cent in the second quarter of 2014 compared with the previous year due to a longer winter drilling season and a drier-than-usual spring breakup. Drilling industry days in the United States also increased by 5 per cent during the period. Against this backdrop, Pason demonstrated strong operational and financial performance.”

Li says Pason’s Q2 bested his expectations for both the top and bottom line. He says growth was driven by a number of factors, including the impact of foreign exchange, new products, and an increasing market share. A rise in the number of drilling industry days is also a factor, but the analyst notes that the company continues to outpace the growth of that metric. He points out that the company grew at 23% in the U.S. compared to a 5% uptick for the industry days, while posting growth of 46% in Canada, which saw a 35% increase in drilling days.

In a research update to clients Friday, Li upped his recommendation on Pason Systems to “Top Pick” from his previous “Strong Buy”. The Industrial Alliance analyst also raised his one-year target price on the stock from $37.00 to $41.50, implying a return of 33.1% (including dividend) at the time of publication.