Is Dexterra Group a buy?

Its first quarter results are in the books and Beacon analyst Kirk Wilson has lowered his price target on Dexterra Group (Dexterra Group Stock Quote, Chart, News, Analysts, Financials TSX:DXT).

On May 14, DXT reported its Q1, 2024 results. The company posted Adjusted EBITDA of $19.6-million on revenue of $231.6-million.

Wilson characterized the quarter.

“Dexterra released Q1/24 results that had a bit of a different look as the Modular division was removed from continuing operations due to a sale of Modular being in the final stages with a conclusion expected in July. DXT expects the sale price to be in-line with the NAV at $40 million. As for the continuing operations of the IFM and WAFES divisions, EBITDA results of $19.6 million were bang-on our expectations. In terms of comparable periods, we show the results including the Modular division but note that the EBITDA result would be only $0.1 million lower without the Modular inputs. Revenue was above our forecasts at $231.6 million from continuing operations, giving an overall Q1/24 EBITDA margin of 8.5%, which is the lowest in at least the last two years. DXT continues to be challenged by inflation for both labor and food (particularly in IFM) that has eroded the margin in the past couple of quarters.”

In a research update to clients May 16, Wilson maintained his “Buy” rating but lowered his price target on DXT from $8.25 to $7.80, implying a return of 50% at the time of publication.

The analyst thinks DXT will post EBITDA of $93-million on revenue of $985-million in fiscal 2024. He expects those numbers will improve to EBITDA of $100-million on a topline of $1.0-billion in fiscal 2025.

“DXT is focused on the continuing operations now that the underperforming Modular division looks to be on the way out,” Wilson added. “The company still believes a goal of $1 billion/$100 million for revenue/EBITDA going forward is achievable in 2024. At a 5.0X EV/EBITDA multiple of our 2025 forecasts, we have trimmed our target price to $7.80.”