A consensus beating quarter has Paradigm Capital analyst Spencer Churchill feeling bullish about DIRTT Environmental Solutions (TSX:DRT).
Last Thursday, DIRTT reported its Q1 2015 results. The company earned $4.68-million on revenue of $56.7-million, a 40% topline bump over last year’s first quarter.
“We were very pleased with our financial performance this quarter as contributions from both large projects and our core small- and medium-sized enterprise customers helped drive record first quarter revenue,” said president Scott Jenkins. “Looking ahead, we expect to build momentum across all industries with the exception of the energy sector. A good mix of smaller and larger projects, along with opportunities in new industry verticals, both in North America and internationally, should generate continued growth as we approach the second half of the year and move into 2016.”
Churchill notes that some of DIRTT’s gains were driven by an $8.1-million contribution from a $30-million oil and gas contract and notes that management has cautioned about delays from this segment in the second half of the year. But he also points out that the company saw a lower contribution from the health care sector, something he chalks up to timing. The analyst thinks this segment will be a solid contributor to the company’s 2015.
“Overall, expectations were again high heading into the quarter (stock up over 70% since Q4 results), although we expect these numbers are sufficient to keep the positive momentum,” said Churchill. We anticipate moderate q/q revenue growth in Q2 (less contribution for the large contract) and a reduction in EBITDA with a jump in Connext-related opex. That said, the outlook for H2 and beyond remains very robust.”
In a research update to clients yesterday, Churchill maintained his “Buy” rating on DIRTT Environmental Solutions, but raised his one year target price on the stock from $9.50 to $10.50, implying a return of 17% at the time of publication.