Is TerraVest Industries a buy?

Want to own a stock that is as strong as steel? Desjardins analyst Gary Ho says take a look at TerraVest Industries (TerraVest Industries Stock Quote, Chart, News, Analysts, Financials TSX:TVK).

In a research update to clients July 3, Ho initiated coverage of TVK with a “Buy” rating and price target of $95.00.

The analyst explained what he likes about the stock.

“We are positive on TVK for several reasons: (1) It has a proven M&A strategy with meaningful procurement benefits and step-out opportunities to expand its TAM. (2) With scale, TVK sources steel directly from steel mills vs distributors, leading to 15–30% savings vs peers; procurement benefits are realized across other COGS materials. (3) It has a strong Canadian market position in compressed gas manufacturing (tanks, maintenance, refurbishment, fleet servicing), with biogas and domestic tank refurbishment organic growth opportunities. (4) The recent equity offering fortified its balance sheet (~1.2x leverage), providing ample dry powder (C$560m+, 3x leverage comfort) to execute on its M&A strategy. (5) With a significant 33% equity interest, insiders are well-aligned. Potential near-term catalysts include: (1) biogas pipeline remains robust (5–6 projects in backlog) with strong quoting activity; (2) C$25m Cowansville facility expansion drives incremental organic growth; and (3) future M&A activity (we model C$165m out to FY26) should fuel revenue, EBITDA and FCF.”

Ho believes TerraVest will post Adjusted EBITDA of $182-million on revenue of $914-million in fiscal 2024. He expects those number will improve toi Adjusted EBITDA of $198-million on a topline of $1.1-billion in fiscal 2025.

“Our investment thesis is predicated on: (1) its long runway of M&A growth potential; (2) its history of extracting value from procurement synergies; and (3) a management team keenly focused on FCF,” he concluded.