On Friday, Lake Street Capital Markets adjusted its outlook on Priority Technology Holdings Inc. (NASDAQ: PRTH), increasing the price target to $13.00 from $8.00, while keeping a Buy rating on the company's stock. The move comes after Priority Technology announced that it has fully redeemed its remaining preferred shares and accrued dividends, totaling $116 million. This redemption was financed by an increase in its term debt, which is due in May 2031.
The company had previously completed a partial redemption of its preferred shares in May 2024, which was part of a refinance of its term debt. According to the analyst from Lake Street Capital Markets, this latest financial maneuver simplifies Priority Technology's capital structure and is expected to act as a catalyst for the company's stock. The analyst believes that with a more straightforward balance sheet, the company will likely use its improved cash flow to reduce its debt, benefiting further from the natural de-levering effect of EBITDA growth.
Despite a recent uptick in the stock's price, the analyst points out that Priority Technology's shares are still trading at a discount. Specifically, the stock is priced at 6.8 times its projected 2025 EBITDA, compared to its peers in the payment processing industry, which show 10%+ EBITDA growth and trade at an average of 12.5 times EBITDA. The analyst also references the recent acquisition of Nuvei (TSX:NVEI), a peer company, which was purchased at 11.4 times its next twelve months (NTM) EBITDA, suggesting a premium compared to Priority's current valuation of 7.1 times.
Closing the valuation gap is anticipated as investors acknowledge Priority Technology's ongoing progress and the potential for recurring revenue growth. The analyst concludes that the company's stock presents an attractive risk/reward proposition and reaffirms the Buy rating with the new $13.00 price target.
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