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Investing.com - National Bank Financial upgraded CES Energy Solutions Corp. (TSX:CEU) (OTC:CESDF) from Sector Perform to Outperform, setting a price target of C$10.50. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.34, with a PEG ratio of 0.89 indicating attractive valuation relative to growth.
The upgrade comes after CES Energy Solutions experienced a 35% decline from recent highs, significantly underperforming peers who fell 15-20%. National Bank Financial indicated this price drop has created an attractive investment opportunity despite the current muted macro environment. InvestingPro data shows the company currently trades below its Fair Value, with strong fundamentals including a 24.25% gross profit margin and 18% return on invested capital.
The financial firm highlighted CES Energy’s insulated earnings position due to its high entrenchment in the fluids space and exposure to increasing demand for consumable fluids. The company’s diversified business lines, with production chemicals representing approximately 50-60% of revenue, were also cited as positive factors.
For Q2/25, National Bank Financial forecasts CES Energy Solutions will generate revenue of $577.8 million, representing a 9% decrease quarter-over-quarter but a 4% increase year-over-year. The firm projects EBITDA of $90.8 million, down 9% quarter-over-quarter and 5% year-over-year.
The projected EBITDA margin of 15.7% for Q2/25 aligns with the previous period’s 15.8% but falls below the 17.3% reported in the same period last year, according to National Bank Financial’s analysis.
In other recent news, CES Energy Solutions Corp. received an upgrade from S&P Global Ratings, raising its credit rating to ’B+’ from ’B’. This improvement is attributed to the company’s efforts in reducing its debt by C$50 million in 2024. The company’s funds from operations (FFO) to debt ratio ended the year at 62%, and S&P anticipates that CES Energy’s leverage metrics will remain strong despite an expected decrease in North American oilfield activity in 2025. The ratings agency also forecasts a revenue decline of 8% in 2025, with the EBITDA margin expected to drop to 14% from 15.3% in 2024 due to lower rig counts impacting demand and pricing. However, a slight improvement is anticipated in 2026 driven by higher commodity prices and better demand conditions. CES Energy’s financial policy supports the higher rating, with a focus on debt reduction over buybacks to maintain a leverage target of debt to EBITDA of 1.5x or less. The company’s U.S. business, which makes up 66% of total revenue, has limited direct exposure to tariff uncertainty, with most customer contracts including cost pass-through mechanisms. Despite its variable-cost structure being beneficial in past downturns, CES Energy’s mid-teens EBITDA margin lags behind ’B+’ rated peers. S&P’s stable outlook reflects expectations that CES Energy will generate about C$190 million of free cash flow in 2025, prioritizing debt reduction to maintain its leverage target.
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