On Wednesday, BMO Capital Markets updated its outlook on Telos Corporation (NASDAQ:TLS), increasing the price target to $4.50 from the previous $3.00. The firm maintained its Market Perform rating on the stock.
Telos Corporation, known for providing cybersecurity solutions, has reported a quarter that surpassed revenue expectations and provided guidance that indicates further growth. The company is also experiencing changes, as it is in the process of restructuring and has decided to exit certain aspects of its Security Solutions business, including the Ghost product line.
Despite these changes, BMO Capital Markets sees positive developments in Telos's Transportation Security Administration (TSA) business, which is expected to expand. The firm's analyst pointed out that for Telos to continue its growth trajectory into Calendar Year 2025, the company will need to demonstrate effective execution of its large contract awards.
The increase in the price target reflects the analyst's recognition of the company's potential, despite the ongoing restructuring. The Market Perform rating suggests that the analyst views the stock as likely to perform in line with the broader market. The new price target of $4.50 represents BMO Capital Markets' adjusted valuation of Telos based on the latest financial results and future prospects.
In other recent news, Telos Corporation has reported encouraging figures in their latest earnings call. The company's Q3 revenue hit $23.8 million, with the Security Solutions segment, largely driven by the TSA PreCheck program, contributing 77% to the total revenue. Despite a significant charge in Q3, Telos managed to improve its adjusted gross margin and reported a smaller adjusted EBITDA loss than anticipated.
Looking forward, Telos projects a revenue growth in Q4, with estimates ranging from $24.5 million to $26.5 million. The company also expressed confidence in achieving substantial year-over-year revenue increases by 2025, supported by a robust business pipeline valued at approximately $4.1 billion.
Telos has also set a target for 500 TSA PreCheck enrollment locations by the end of 2025. The company anticipates revenue growth, driven by existing business and new contracts, with a conservative estimate of $60 million to $85 million in annual revenue from the DMDC and DHS programs by 2025. Despite projecting an adjusted EBITDA loss for Q4, the company is optimistic about generating positive free cash flow as contracts mature.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Telos Corporation's financial situation and market performance. Despite the company's recent positive quarter and BMO Capital Markets' increased price target, InvestingPro Tips indicate that Telos is not currently profitable and analysts anticipate a sales decline in the current year. This aligns with the company's ongoing restructuring efforts and exit from certain business segments mentioned in the article.
However, it's worth noting that Telos has shown strong market performance recently. InvestingPro data reveals a impressive 60.99% price return over the last three months, and a 30.67% return over the past six months. This positive momentum may reflect investor optimism about the company's restructuring efforts and potential growth in its TSA business, as highlighted in the BMO Capital Markets analysis.
Interestingly, InvestingPro Tips also point out that Telos holds more cash than debt on its balance sheet and its liquid assets exceed short-term obligations. These factors could provide the company with financial flexibility as it navigates its restructuring and focuses on executing large contract awards, which the BMO analyst identified as crucial for future growth.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Telos Corporation, providing a deeper understanding of the company's financial health and market position.
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