On Wednesday, B.Riley downgraded Hudson (NYSE:HUD) Technologies (NASDAQ:HDSN) stock from Buy to Neutral, adjusting the price target to $8.50 from the previous $10.00.
The firm expressed caution regarding the company's growth expectations, lowering them from +16.6% to +8.5%. This change comes amidst persistent pricing pressures on hydrofluorocarbon (HFC) refrigerants this year.
The downgrade reflects concerns over the uncertainty of the impact of the Environmental Protection Agency's (EPA) new mandate, which requires all new 2025 residential and light commercial HVAC systems to use refrigerants with lower global warming potential (GWP).
While the long-term effect on HFC refrigerant costs is expected to be an increase as supplies diminish, the short-term implications remain unclear.
For the third quarter, B.Riley anticipates Hudson Technologies will face a tough year-over-year comparison, with projected revenues, EBITDA, and EPS of $63 million, $11.5 million, and $0.15 respectively. These figures fall below the consensus estimates of $66 million in revenue, $12.2 million EBITDA, and $0.16 EPS.
The report also mentions that third-quarter sales are expected to drop by 18% year-over-year. Recent checks in the distribution channels suggest that certain HFC refrigerant prices may be flat or slightly declining, potentially impacting the company's previously guided 2024 revenue range of $240 million to $250 million, which would represent a 15.2% decrease at the midpoint.
Additionally, the gross margin is projected to be around 30%, with some suppliers maintaining steady HFC prices while others might have reduced them.
In other recent news, Hudson Technologies has announced a significant expansion of its share repurchase program. The company's board of directors has approved the repurchase of an additional $10 million in shares for each of the years 2024 and 2025, effectively doubling the previously authorized amount to a total of $20 million. This decision reflects the board's confidence in the company's long-term growth potential, backed by a strong balance sheet.
In terms of earnings, Hudson Technologies reported mixed results in its Second Quarter 2024 Earnings Call. The company experienced a 17% drop in revenue, totaling $75.3 million, primarily due to pricing pressures on certain refrigerants. However, they also saw a 17% rise in refrigerant sales volume.
Despite the challenges, the company forecasts full-year revenue between $240 million and $250 million. Hudson Technologies has also recently completed the acquisition of USA Refrigerants, a move expected to strengthen their recovery and reclamation capabilities. The company maintains a robust financial base, with $89.5 million in total liquidity and no debt, fueling their optimism for future growth. These are the latest developments in the company's operations.
InvestingPro Insights
Recent InvestingPro data provides additional context to Hudson Technologies' (NASDAQ:HDSN) current financial situation, aligning with B.Riley's cautious stance. The company's revenue for the last twelve months as of Q2 2024 stands at $261.88 million, with a concerning revenue growth of -14.03% over the same period. This decline is even more pronounced in the quarterly data, with Q2 2024 showing a -16.79% revenue growth, supporting B.Riley's projection of a challenging third quarter.
Despite these headwinds, InvestingPro Tips highlight some positive aspects of HDSN's financial health. The company holds more cash than debt on its balance sheet, and its liquid assets exceed short-term obligations, indicating a strong financial position. Additionally, HDSN is trading at a low earnings multiple with a P/E ratio of 9.93, which might interest value investors.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Hudson Technologies, providing a deeper understanding of the company's financial landscape.
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