BMO cuts Telos stock price target to $3 from $4.50, keeps rating

On Tuesday, BMO Capital Markets revised its price target for Telos Corporation (NASDAQ:TLS) shares, reducing it to $3.00 from the previous $4.50, while maintaining a Market Perform rating on the stock. The adjustment follows Telos’ fourth-quarter performance, which surpassed BMO’s forecasts, and a positive outlook for the company’s Security Solutions business in calendar year 2025 (CY25). The revision comes amid challenging market conditions for Telos, with the stock down over 23% year-to-date and trading near $2.61. According to InvestingPro data, the company maintains strong liquidity with a current ratio of 3.64 and holds more cash than debt on its balance sheet.

Analysts at BMO Capital highlighted the Security Solutions division’s improved positioning for CY25 compared to CY24, owing in part to the progress of a significant DMDC contract secured during CY24. Additionally, the Transportation Security Administration’s (TSA) potential contribution to growth through new registration locations was noted as a positive factor. InvestingPro analysis shows that 4 analysts have recently revised their earnings upwards for the upcoming period, though they anticipate a sales decline in the current year.

Despite these encouraging developments, BMO analysts expressed caution regarding the risks associated with securing new business in the government sector, citing the transition to a new administration as a potential challenge. This caution factored into their decision to maintain the Market Perform rating.

In their commentary, BMO analysts stated, "Improvement in Security Solutions; TLS reported upside to our forecast in the fourth quarter, and we believe the Security Solutions business is better positioned for CY25 vs CY24 particularly given the ramp-up of the large DMDC contract won during CY24. Moreover, we think TSA can be additive to growth primarily driven by additional registration locations."

The firm also introduced its fiscal year 2026 (FY26) estimates, which influenced the revised price target. The new target is based on a valuation range of 1 to 2 times the enterprise value to fiscal year 2026 estimated revenues (EV/FY26E revenues), a shift from the previous target which was based on 1x-2x EV/FY25E revenues. According to InvestingPro’s comprehensive analysis, which includes over 30 financial metrics and real-time Fair Value calculations, Telos currently appears fairly valued relative to its fundamentals. Subscribers can access the full Pro Research Report for detailed insights into Telos’s valuation metrics, financial health, and growth prospects. The analysts concluded, "We are lowering our target price from $4.50 to $3.00. We are also introducing our FY26 estimates. Our previous target price was based on 1x-2x EV/FY25E revenues. Our new target price is based on 1-2x EV/FY26E revenues. We remain Market Perform."

In other recent news, Telos Corporation reported fourth-quarter earnings that exceeded analyst expectations, though the company experienced a notable year-over-year revenue decline of 36%. The revenue for the quarter was $26.4 million, slightly surpassing the consensus estimate of $25.62 million. Adjusted earnings per share were reported at -$0.04, beating the expected -$0.11. Despite the earnings beat, the decline in revenue overshadowed the positive earnings, with the Secure Networks segment experiencing a 78% year-over-year drop. The Security Solutions segment, however, saw a 6% increase. DA Davidson analysts revised their price target for Telos shares from $3.50 to $2.50, maintaining a Neutral rating, following the company’s quarterly financial results. The analysts noted that while Telos’ EBITDA outperformed by $3.7 million, the company’s revenue guidance was mixed. Looking forward, Telos anticipates Q1 2025 revenue between $28.2 million and $30.2 million, driven by growth in the Security Solutions segment.

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