On Tuesday, Clear Street initiated coverage on TETRA Technologies Inc. (NYSE: TTI) with a Buy rating and set a price target of $8.00, representing significant upside from the current price of $3.67. The firm based the target on a valuation multiple of 8x EV/EBITDA of the company's projected 2026 adjusted EBITDA of $148 million.
According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics, with analyst targets ranging from $5 to $7. Clear Street highlighted TETRA Technologies' diversification and its reduced correlation with the Oil & Gas cycle and drilling rig count, which could lead to a re-rating of the stock as investors recognize the value of its industrial Calcium Chloride business and bromine optionality.
The analyst from Clear Street expects that by 2028, half of TETRA Technologies' EBITDA could derive from non-Oil & Gas customers, provided the company successfully scales its bromine production project for industrial clients and energy storage. The forecast includes a potential $1.50 upside to the price target if the company effectively scales its desalination of produced water solution, and an additional $2.50 if its bromine project is executed as planned.
Clear Street is optimistic about TETRA Technologies' prospects for the next year, anticipating a 12% increase in sales—double the growth rate of its underlying markets—and a 34% rise in EBITDA. This growth is expected to be driven by high-margin projects such as the CS Neptune initiative in the Gulf of Mexico, which boasts an approximate 65% EBITDA margin, a significant deepwater project in Brazil, and the expansion of full electrolytes solutions to Eos Energy.
The firm also commended TETRA Technologies for its improved financial position compared to three years ago, specifically noting the company's reduced debt leverage. With a healthy current ratio of 2.33, the company's liquid assets comfortably exceed its short-term obligations.
This stronger financial standing is seen as a positive factor for the potential construction of a bromine production plant, which could contribute an additional $72 million in annual EBITDA by 2028, marking a 48% increase to the company's current EBITDA of $80.72 million. For a comprehensive analysis of TETRA's financial health and growth prospects, investors can access the detailed Pro Research Report available on InvestingPro.
In other recent news, TETRA Technologies reported its third-quarter 2024 financial results, revealing earnings of $23.5 million and revenue of $142 million, which represents a 6% decline from the previous year. These results come amid market challenges, including hurricanes in the Gulf of Mexico and decreased U.S. completion activity. Despite these difficulties, TETRA secured significant contract wins, such as a multi-year deepwater completions fluid award in Brazil and a record in produced water recycling.
The company anticipates a robust first half of 2025, with projects in the Gulf of Mexico and Brazil expected to contribute to growth. TETRA also introduced a new product, TETRA X, and is advancing its Arkansas bromine project with a revised capital expenditure plan. Strategic initiatives, including the CS Neptune projects, Brazil operations, and automation in Water & Flowback Services, are also in the pipeline.
TETRA is preparing for commercial plant operations in water desalination by 2026 and is collaborating with Aflac (NYSE:AFL) on a South Texas project. The company also holds a 2.5% royalty from Standard Lithium's commercial production and is advocating for a favorable royalty structure.
Despite a 6% year-over-year decrease in third-quarter revenue, TETRA remains optimistic about its strategic initiatives and growth prospects, focusing on margin enhancement and efficiency improvements through automation.
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