This analyst remains bullish on Tornado Infrastructure stock

Beacon Securities analyst Russell Stanley maintained a “Buy” rating and $2.50 target for Tornado Infrastructure Equipment (Tornado Infrastructure Equipment Stock Quote, Chart, News, Analysts, Financials TSXV:TGH) in a June 6 note, citing strong demand from key customers and upside potential from the recently completed CustomVac acquisition.

Stanley sees room for further growth if Tornado successfully cross-sells CustomVac products and captures cost synergies, which could support a higher valuation.

Tornado Infrastructure Equipment designs and builds hydrovac trucks at its 63,000-square-foot Red Deer, Alberta facility. The trucks are sold to infrastructure, industrial construction, and oil and gas customers. The company also offers heavy-duty truck maintenance.

Tornado’s two largest customers are Custom Truck One Source and Ditch Witch, a division of The Toro Company (NYSE: TTC), accounting for about 30% and 20% of revenue, respectively, based on current figures and before any potential sales of CustomVac products through those channels. Stanley expects Tornado to cross-sell CustomVac offerings through its existing network.

“TTC has been a major Tornado customer since 2022,” Stanley said. “TTC provides solutions for the outdoor environment, including turf and landscape maintenance, snow and ice management, underground utility construction, rental and specialty construction, and irrigation and outdoor lighting solutions. Its sales of hydrovacs are part of its underground utility construction business within its Professional segment.

Tornado reported Q2 revenue and earnings slightly below expectations and cut its fiscal 2025 outlook due to macro headwinds affecting its residential segment. Management expects residential sales to decline in the mid-teens, while professional sales are anticipated to grow slightly, resulting in overall revenue remaining flat to down 3% year-over-year. They emphasized that demand weakness is limited to the residential segment, with the professional segment, including hydrovacs, remaining strong. Although sales of underground construction products declined in Q2, the drop was tied to dealer divestitures, not lower hydrovac demand.

“During Thursday’s conference call, management clarified that the y/y decline reflects the divestiture of two equipment dealers, and secondarily lower shipments of compact utility loaders (i.e. it was not hydrovac-related),” Stanley said. “Management added it remains ‘extraordinarily excited about this business’ with at least several years of strong growth ahead. The company highlighted demand from utilities, specifically for the construction of data centres and all the associated underground infrastructure (hydrovacs play an important role there). Management specified that Ditch Witch’s demand picture remains strong, its backlog remains extended, and it is unlikely to return to normal levels until F2026.”

Stanley expects Tornado to generate $22-million in Adjusted EBITDA on $180-million in revenue for fiscal 2025. He sees those numbers climbing to $35-million in EBITDA on $228-million in revenue by fiscal 2026, reflecting growing demand and early contributions from the CustomVac acquisition.

Stanley said CustomVac outperformance could support a $3.25 price target. Tornado recently acquired CustomVac for $28-million, a maker of vacuum equipment used in oil and gas, utilities, and other sectors. On the news, Stanley raised his 2026 Adjusted EBITDA forecast from $29-million to $35-million, assuming a $10-million gross profit contribution from CustomVac with little to no growth. He expects Tornado to drive further gains by cross-selling CustomVac products, cutting unit costs through supply chain synergies, and reducing outsourcing by using CustomVac’s in-house capabilities.

“Were Tornado to double CustomVac’s F2026 gross profit contribution to $20M, our adj EBITDA forecast would improve to $45M and would support a PT of $3.25/sh, all else equal,” Stanley said. “We also expect Tornado to continue pursuing additional acquisition opportunities aimed at expanding its capabilities across the infrastructure equipment market, with this $28M cash acquisition likely to draw interest from other targets.”

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