Desjardins raises revenue, EBITDA targets on H2O Innovation

A recent meeting with management has Dejardins analyst Frederic Tremblay feeling bullish about H2O Innovation (H2O Innovation Stock Quote, Chart, News, Analysts, Financials TSX:HEO).

Quebec City-based H2O Innovation designs and provides integrated water treatment solutions based on membrane filtration technology for municipal, industrial, energy and natural resources end-users, with operations in the Water Technologies and Services, Specialty Products and Operation and Maintenance Services segments.

Tremblay notes that he recently highlighted HEO as one of Dejardins’ preferred ideas to navigate an economic downturn and adds that a recent meeting with management, combined with results that are clearly strong leaves him with a single conclusion.

“Following meetings with CEO Frederic Dugré and CFO Marc Blanchet last week, it is also becoming crystal clear that: (1) HEO can surf on a strong wave of profitable growth thanks to sector-wide and company-specific tailwinds, and
(2) there could be a rising tide as it relates to Street forecasts because HEO looks increasingly well positioned to reach the upper half of its FY23/FY24 revenue goals,” the analyst said.

In a research report on July 12, Tremblay reiterated his “Buy” rating and one-year price target of $3.50 on H2O Innovation, implying a return of 88.2 per cent at the time of publication.

The analyst thinks HEO will post Adjusted EBITDA of $17.5-million on revenue of $180-million in fiscal 2022. He now expects those numbers will rise to EBITDA of $22.1-milion on a topline of $208-million the following year. (He previously had a the company posting EBITDA of $21.5-million on a topline of $196-million. )

Tremblay says he continues to see the stock as undervalued.

“HEO shares are trading at ~9x our FY23 EBITDA estimate. This is below the stock’s range of ~10–15x observed over the past couple of years, the average of water peers at over 12x and large acquisitions in the space at over 15x. Our C$3.50 target represents a 14x multiple on our FY23 EBITDA estimate and 12.5x on FY24E.