Transcat stock rating cut to Perform at Oppenheimer

On Wednesday, Oppenheimer analysts downgraded Transcat Inc. (NASDAQ:TRNS) stock from Outperform to Perform, removing their previous $130 price target. The stock, which has declined over 35% in the past six months according to InvestingPro data, is currently showing oversold conditions based on technical indicators. The downgrade followed Transcat’s third fiscal quarter 2025 results, which did not meet expectations. The company reported revenue, adjusted EBITDA, and adjusted EPS of $66.8 million, $7.9 million, and $0.45 respectively, which fell short of the consensus estimates of $70.3 million, $9.5 million, and $0.45. Despite the disappointing quarter, InvestingPro analysis shows the company maintains strong fundamentals with a healthy current ratio of 2.42 and operates with moderate debt levels.

Transcat’s organic service revenue saw a 3.8% decline, a significant deviation from its long-term growth guidance, which ranged from high single digits to low double digits. Management attributed this shortfall to the timing of holidays in December and subsequent customer behavior, which proved more disruptive than anticipated. Consequently, the company has revised its full-year 2025 organic service growth outlook to low single digits to mid single digits.

The company experienced gross margin compression in both its Service and Distribution segments. This marks the third consecutive quarter where Transcat has posted lower-than-expected organic service growth, and notably, this quarter included the first decline in organic service revenue.

In light of these results, Oppenheimer analysts have chosen to step back, stating, "We step to the sidelines until we build more confidence in TRNS’ ability to deliver stable mid-to-long-term growth." The firm’s decision to remove their price target comes as they await signs of more consistent performance from Transcat. According to InvestingPro, which offers comprehensive valuation analysis and 12+ additional ProTips for this stock, Transcat currently trades at a relatively high P/E ratio of 53.66, suggesting investors may need to carefully evaluate its growth prospects.

In other recent news, Transcat Inc. saw its third-quarter fiscal year 2025 revenues and adjusted EBITDA fall below market expectations, reaching $66.8M in revenue. Despite this, H.C. Wainwright maintained a Buy rating for the company with a $126 target. The firm cited stronger activity levels in January, a robust organic pipeline, and the recent acquisition of Martin Calibration Inc. as positive indicators for Transcat’s future.

In addition, Transcat has secured severance agreements with three of its top executives, providing leadership stability in the event of significant corporate transactions like mergers or acquisitions. This move follows the company’s recent acquisition of Martin Calibration, which is expected to enhance its scale and service capabilities. Craig-Hallum responded to this acquisition by upgrading Transcat’s price target from $113.00 to $125.00.

Transcat reported an 8% increase in consolidated revenue for the second quarter of fiscal 2025, largely driven by strong demand in calibration services and the rental business. However, the company’s NEXA cost control services faced challenges, contributing to a 5% decrease in adjusted EBITDA. Despite these challenges, the company plans to address NEXA’s performance issues and anticipates mid-single-digit organic service revenue growth for fiscal 2025. These are recent developments in Transcat’s ongoing efforts to improve operational efficiencies and capitalize on market opportunities.

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