Is this U.S.-China selloff a buy? A top Wall Street voice weighs in
On Tuesday, Canaccord Genuity adjusted its price target for Arq Inc. (NASDAQ: ARQ) shares, reducing it to $9.00 from the previous $10.00 while retaining a Buy rating on the stock. Currently trading at $6.08, ARQ has shown remarkable strength with an 82.58% return over the past year, according to InvestingPro data. The firm’s analysts cited a mix of positive and negative developments regarding the company’s shift from powder activated carbon (PAC) to granulated activated carbon (GAC).
Arq Inc. reported on Friday that its transition to GAC is progressing as planned, with continued interest from a diverse set of customers. The company, which maintains a healthy current ratio of 2.89 and has achieved 16.44% revenue growth, faces challenges with cash management. The update included less favorable news of an unexpected increase in capital expenditures for 2024. The company now anticipates that an additional $15 million will be necessary, bringing the total estimated capex from around $65 million to approximately $80 million for the GAC facility transition.
In light of these developments, Canaccord Genuity has revised its capex per pound of GAC estimates upwards for the years 2025, 2027, and 2028. The new estimates are now $3.75 per pound for 2025 and 2027, up from $3.00, and $3.25 per pound for 2028, reflecting the potential risks associated with cost overruns.
The revised price target of $9.00 is based on a discounted cash flow (DCF) analysis. This analysis assumes a weighted average cost of capital (WACC) of approximately 14% and a terminal growth rate of around 5%. Despite the increase in anticipated capex, Canaccord Genuity’s ongoing endorsement of Arq Inc. with a Buy rating suggests confidence in the company’s long-term potential. With a market capitalization of $255.56M and EBITDA of $10.63M, investors seeking deeper insights into ARQ’s valuation metrics and 10+ additional ProTips can access comprehensive analysis through InvestingPro.
In other recent news, Arq, Inc. announced the on-schedule progress of its Granular Activated Carbon (GAC) production facility. Initial production is expected to commence in the first quarter of 2025, with a ramp-up period leading to a full production capacity of 25 million pounds annually by the second half of 2025. Arq also reported slightly over-expected capital expenditures for the GAC expansion at its Red River facility, totaling approximately $80 million for the year.
In other financial developments, Arq secured a $30 million asset-based revolving credit facility with MidCap Financial. This facility is intended to refinance existing debt, support capital expenditures at the Red River plant, and meet working capital needs for corporate growth initiatives.
In the realm of analyst ratings, Canaccord Genuity initiated coverage on Arq, assigning a Buy rating to the stock. The firm’s analysis is based on Arq’s involvement in the growing activated carbon market, particularly its strategic shift from powdered activated carbon to granular activated carbon, which offers higher average selling prices and profit margins.
Lastly, Arq has commenced legal proceedings against its design firm for the GAC expansion project, alleging negligence and breach of contract. The company seeks damages for these additional expenses but maintains that the legal action will not impact the product performance or the scheduled start of GAC production. These are among the recent developments for Arq, Inc.
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