Lake Street starts Energy Services stock with Buy, $21 target

On Monday, Lake Street Capital Markets began coverage on Energy Services Of America Corp. (NASDAQ:ESOA), assigning the stock a Buy rating and setting a price target of $21.00, representing significant upside from the current price of $8.40. The firm’s analyst cited the company’s successful turnaround and diversification into higher-margin and less cyclical verticals as key reasons for the positive outlook. According to InvestingPro data, the stock has recently experienced volatility, with a 15% decline over the past week.

Energy Services of America (OTC:ESOA), also known as ESA, has recently improved its operating margins and free cash flow. The company currently generates $367.91M in revenue with an EBITDA of $21.29M. The acquisition of Tribute Contracting is expected to further enhance the company’s presence in the water vertical, which is seen as an attractive market. According to Lake Street, ESA’s current valuation at 5.1x EV/EBITDA for the calendar year 2027 is significantly lower than its peers, which typically trade around 10x. The analyst believes this discrepancy will diminish as ESA continues to demonstrate improved margins and revenue growth. InvestingPro analysis shows the company maintains a "GREAT" financial health score, though it currently faces challenges with its gross profit margin of 11.75%.

The company is also anticipated to benefit from secular trends, such as the need to replace aging water and electrical infrastructure and the reshoring of manufacturing and industrial infrastructure. These factors are expected to boost construction activity in ESA’s core regions of the industrial Midwest and mid-Atlantic.

Lake Street’s analysis suggests that ESA is on track to become a business with annual revenues between $650 million and $700 million, with EBITDA margins between 8.5% and 9%. This performance could potentially lead to an EBITDA of $55 million to $60 million. Based on these projections, the analyst sees a long-term stock opportunity approaching approximately $30 per share. The current price target of $21 is based on a 9.8x EV/EBITDA multiple, aligning with the average of ESA’s industry peers.

In other recent news, Energy Services of America Corporation has announced a quarterly cash dividend of $0.03 per common share, scheduled for payment on April 15, 2025, to shareholders recorded by March 31, 2025. This dividend declaration aligns with the company’s financial strategies and aims to provide value to its investors. Additionally, Energy Services of America held its Annual Meeting of Stockholders, where several key proposals were voted on. During the meeting, shareholders elected directors, including Marshall T. Reynolds and Jack M. Reynolds, among others. The appointment of Urish Popeck & Co., LLC as the independent auditor for the fiscal year ending September 30, 2025, was ratified by a majority. Shareholders also passed an advisory resolution on executive compensation and decided on annual votes for future compensation. The Board of Directors responded by committing to hold an annual advisory vote on executive compensation until at least 2031. These developments reflect the company’s ongoing efforts to maintain transparency and good governance practices.

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