On Tuesday, Scotiabank reiterated its Sector Outperform rating on CES Energy Solutions (OTC:CESDF) Corp. (CEU:CN) (OTC: CESDF), maintaining the price target of Cdn$8.50. The firm anticipates that CES Energy Solutions will be added to the TSX Composite Index on June 21, 2024, after the market closes. This inclusion is expected to trigger a significant purchase of shares by index funds.
The firm estimates that indexers will need to buy approximately 10 million shares of CES Energy Solutions, which is 6.1 times the average daily volume of the last 20 trading days. The addition of the company to the index is part of a broader trend, with index additions increasing by 25% since April 1, 2024. Although the overall outperformance of these additions has paused since May 10, 2024, the firm notes that CES Energy Solutions, along with other companies, has maintained its position.
CES Energy Solutions' share performance is also seen in the context of commodity prices, with the suggestion that the company's stock might resume outperforming after the rebalancing process, particularly if there is an uptick in commodity prices. The firm's analysis shows that CES Energy Solutions is trading at a 10.5% free cash flow (FCF) yield based on their 2024 estimates and 12.1% on their 2025 estimates. The company's financial prospects appear to be solid according to these projections.
In other recent news, CES Energy Solutions has reported a record-breaking first quarter in 2024, marking the highest revenue and EBITDA in the company's history. The firm announced a revenue of $588.6 million and an EBITDA of $102 million, demonstrating a strong business model and strategic focus on technology, product offerings, and potential international expansion.
Additionally, the company has completed its share buyback program and plans to renew it, alongside reducing leverage and continuing to pay dividends. All divisions reported margins over 15% in the past quarter, and CES Energy Solutions is considering new geographies and vertical integration to enhance its business.
The company's LTM ROACE reached 23%, reflecting a strong performance, and CES plans to access the bond market before the Term Loan A matures next April, subject to market conditions. Despite the acquisition of ChampionX by Schlumberger (NYSE:SLB), CES does not perceive it as a significant threat.
InvestingPro Insights
As Scotiabank maintains a positive outlook on CES Energy Solutions Corp. (OTC: CESDF), real-time data from InvestingPro aligns with the firm's sentiment. The company, with a market capitalization of $1.21 billion, is trading at an attractive P/E ratio of 9.9, which is even more compelling when considering the adjusted P/E ratio for the last twelve months as of Q1 2024 stands at 9.48. This valuation suggests that the company may be undervalued relative to its earnings growth potential.
InvestingPro Tips highlight that CES Energy Solutions has not only maintained but also raised its dividend payments for 19 consecutive years, marking a consistent return to shareholders. Moreover, with a robust 1.7% dividend yield and a striking 46.08% dividend growth in the last twelve months as of Q1 2024, the company demonstrates a strong commitment to its dividend policy. Additionally, the company's stock has experienced a large price uptick over the last six months, with a 6-month price total return of 107.98%, underscoring the potential for significant capital appreciation.
For investors seeking more in-depth analysis and additional insights, there are 11 more InvestingPro Tips available for CES Energy Solutions at https://www.investing.com/pro/CESDF. By using the coupon code PRONEWS24, readers can obtain an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to exclusive data and metrics that can further inform investment decisions.
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