Target Hospitality (NASDAQ:TH) Delivers Strong Q4 Numbers, Guides For Strong Full-Year Sales

Jabin Bastian /
2024/03/13 6:51 am EDT

Workforce housing company Target Hospitality (NASDAQ:TH) reported Q4 FY2023 results beating Wall Street analysts' expectations, with revenue down 17.2% year on year to $126.2 million. The company's full-year revenue guidance of $417.5 million at the midpoint also came in 1.9% above analysts' estimates. It made a GAAP profit of $0.29 per share, down from its profit of $0.31 per share in the same quarter last year.

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Target Hospitality (TH) Q4 FY2023 Highlights:

  • Revenue: $126.2 million vs analyst estimates of $118 million (7% beat)
  • EPS: $0.29 vs analyst estimates of $0.24 (20.8% beat)
  • Management's revenue guidance for the upcoming financial year 2024 is $417.5 million at the midpoint, beating analyst estimates by 1.9% and implying -25.9% growth (vs 22.3% in FY2023) (adjusted EBITDA guidance for the period was slightly ahead)
  • Gross Margin (GAAP): 49.3%, down from 55% in the same quarter last year
  • Free Cash Flow of $38.16 million is up from -$10.75 million in the previous quarter
  • Market Capitalization: $868.2 million

"Our strong 2023 results illustrate the benefit of our efficient operating platform, which we have strategically enhanced over the past several years. This platform continues to support our ability to appropriately match dynamic changes in customer demand, while consistently achieving our financial goals," stated Brad Archer, President and Chief Executive Officer.

Essentially a builder of mini communities, Target Hospitality (NASDAQ:TH) is a provider of specialty workforce lodging accommodations and services.

Hotels, Resorts and Cruise Lines

Hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Target Hospitality's annualized revenue growth rate of 16.6% over the last five years was solid for a consumer discretionary business. Target Hospitality Total RevenueWithin consumer discretionary, a long-term historical view may miss a company riding a successful new property or emerging trend. That's why we also follow short-term performance. Target Hospitality's healthy annualized revenue growth of 39.1% over the last two years is above its five-year trend, suggesting its brand resonates with consumers.

This quarter, Target Hospitality's revenue fell 17.2% year on year to $126.2 million but beat Wall Street's estimates by 7%. Looking ahead, Wall Street expects revenue to decline 28% over the next 12 months, a deceleration from this quarter.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Target Hospitality has shown strong cash profitability, giving it an edge over its competitors and the option to reinvest or return capital to investors while keeping cash on hand for emergencies. The company's free cash flow margin has averaged 20.6%, quite impressive for a consumer discretionary business.

Target Hospitality's free cash flow came in at $38.16 million in Q4, equivalent to a 30.2% margin and up 240% year on year.

Key Takeaways from Target Hospitality's Q4 Results

We were impressed by how significantly Target Hospitality blew past analysts' revenue expectations this quarter. We were also excited its operating margin outperformed Wall Street's estimates. Guidance was also encouraging, with full year 2024 revenue guidance comfortably ahead while the outlook for adjusted EBITDA was slightly above expectations. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock is flat after reporting and currently trades at $8.5 per share.

So should you invest in Target Hospitality right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.