An analyst from B. Riley increased the price target on shares of Telos Corp . (NASDAQ: NASDAQ:TLS) to $5.00, up from the previous $4.00, maintaining a Buy rating on the stock.
The adjustment follows Telos Corp.'s recent announcement that it secured a prime position on the United States Air Force's $12.5 billion infrastructure modernization contract, which led to a significant surge in the company's share price, closing the day up by 25.3%.
The contract, which is an indefinite-delivery/indefinite-quantity (IDIQ) agreement, aims to modernize, operate, and maintain the network infrastructure for all Air Force locations. The project is expected to be completed by August 2034.
According to the analyst, this contract could potentially add approximately $50 million of annual revenue with a low-to-mid 20% gross margin to Telos's Secure Networks business.
The analyst pointed out that the Air Force contract, along with four other federal government contract vehicles secured since 2023, represents an addressable market of roughly $24.5 billion.
The contracts are anticipated to revitalize growth in the company's Secure Networks business, which has seen a decline from its peak revenue of approximately $119 million in FY21 to a projected revenue of around $33 million for FY24.
Despite the substantial recovery of Telos shares from a nearly 47% drop after the second-quarter earnings of 2024, the analyst suggests that the stock has further upside potential. The optimism is based on the expected improvements in key financial metrics by FY25, supported by a favorable resolution of major program awards, the expansion of the TSA PreCheck program, and potential contributions from new contract awards.
The revised price target is based on an estimated FY25 enterprise value-to-sales multiple of approximately 2x, an increase from the previous multiple of 1.5x.
Telos Corporation has secured a $12.5 billion contract from the Department of the Air Force for Base Infrastructure Modernization. This aligns with the company's recent successes in securing federal government contract vehicles, which collectively represent a $24.5 billion addressable market.
In addition to this, Telos has reported surpassing its Q2 2024 financial forecasts, recording revenues of $28.5 million. This growth was primarily driven by their Security Solutions and Secure Networks segments, contributing $17.9 million and $10.6 million, respectively.
However, despite these strong results, BMO Capital Markets adjusted its outlook on Telos by reducing the price target to $3 from the previous $4, maintaining a Market Perform rating. The firm expressed optimism about the growth of TSA PreCheck locations, a potential driver for revenue growth, but also noted concerns about extended protests and delays in securing large contracts.
InvestingPro Insights
In light of the recent analyst upgrade and the potential for revenue growth from the United States Air Force contract, InvestingPro data provides additional context for investors considering Telos Corp. (NASDAQ: TLS). With a significant return over the last week of 64.92% and a year-to-date price total return of 80.1%, the stock has shown remarkable short-term performance. This is particularly noteworthy given the company's high price volatility, which is an important consideration for risk-aware investors.
Despite the positive momentum, InvestingPro Tips suggest caution due to several factors. Analysts have revised their earnings expectations downwards for the upcoming period, and they do not anticipate the company will be profitable this year. Moreover, the company's revenue has decreased by 24.41% over the last twelve months as of Q2 2024, and analysts expect a sales decline in the current year. However, on the balance sheet front, Telos holds more cash than debt, which could provide some financial flexibility in the near term.
For investors looking for a deeper dive into Telos Corp.'s financials and future prospects, there are additional InvestingPro Tips available. These tips could help build a more comprehensive investment thesis, considering both the opportunities and risks associated with the stock. Visit https://www.investing.com/pro/TLS for a full list of tips and detailed analysis.
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