Is Tornado Global Hydrovacs a buy? (November, 2024)

Following the company’s third quarter results, Beacon analyst Russell Stanley has maintained his “Buy” rating on Tornado Global Hydrovacs (Tornado Global Hydrovacs Stock Quote, Chart, News, Analysts, Financials TSXV:TGH).

On November 18, TGH reported its Q3, 2024 results. The company posted EBITDAS of $3.1-million on revenue of $30.5-million.

“Tornado has delivered another strong quarter, with Q3 2024 showing continuing financial growth compared to the same period last year,” CEO Brett Newton said. “This quarter reflects our commitment to growth with the successful launch of a major new product in Q3. This launch, combined with preparation for the construction of our new facility, required reallocating resources and adjusting our production line, which temporarily slowed down overall production. The new facility, expected to be completed by Q2 2025, will significantly increase our production capacity. With these strategic initiatives underway, we anticipate a return to full production capacity in Q4 2024 and remain confident in our continued upward momentum.”

Stanley says there is a buying opportunity here.

“TGH reported stronger than expected Q3 revenue/adj EBITDA,” he wrote. “As of writing, the stock is down 7% on almost 2x normal volume, which we attribute to the q/q revenue/adj EBITDA decline. Given the expected decline reflects efforts to drive growth via a major product launch while initiating a capacity expansion, we view the dip as a buying opportunity. TGH now trades at 6.7x our F2025 adj EBITDA forecast of $24M, representing a 35% discount to the 10.3x at which Alamo Group (ALG-NYSE, Not Rated) trades, and a 55% discount to the 14.9x at which Federal Signal (FSS-NYSE, Not Rated) trades. Given our TGH forecast contemplates 74% y/y EBITDA growth in F2025 v. the 8%/9% contemplated by consensus on ALG/FSS, Tornado offers investors compelling value. Potential catalysts include new product launches, progress toward completion of the Red Deer expansion, M&A activity and the Q4 results. As before, our forecast contemplates hydrovac sales only, and does not include potential revenue from new products and/or M&A, though Tornado is actively working on both paths.”

In a research update to clients November 18, Stanley maintained his “Buy” rating and price target of $1.50 on TGH, implying a return of 39% at the time of publication.

The analyst thinks the company will post Adjusted EBITDA of $14-million on revenue of $133-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $24-million on a topline of $168-million in fiscal 2025.