Buy H2O Innovation ahead of Q4 results, Haywood says

Haywood analyst Pardeep Sangha is expecting good things when water treatment firm H2O Innovation (H2O Innovation Stock Quote, Chart, News: TSXV:HEO) reports its fourth quarter results on Thursday.

On September 28, before market open, H2O Innovation will report its fourth quarter and fiscal 2017 results. Sangha is expecting the company will post Adjusted EBITDA of $500,000 on revenue of $21.4-million, a little softer than the street consensus of EBITDA of $600,000 on a topline of $21.6-million.

Sangha says on the conference call that follows the results he will be listening for updates on the company’s growing backlog, progress on expanding its O&M networks and new acquisition opportunities.

The analyst says H2O is cheap compared to its peers.

“H2O is currently trading at 0.7x EV/Revenue of our CY18 estimates, which is below its industry peer group average of 1.7x EV/Revenue based on consensus CY18 estimates,” the analyst explains. “Our target price is based on applying a 1.1x EV/Revenue multiple of our FY18 forecast, which represents a 0.9x EV/Revenue multiple of our FY19 revenue estimate.”

In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $2.00 on H2O Innovations, implying a return of 60 per cent at the time of publication.

Sangha thinks H2O will post EBITDA of $2.2-million on revenue of $82.5-million in fiscal 2017. He expects those numbers will improve to EBITDA of $4.9-million on a topline of $94.9-million the following year.