Why Target Hospitality's Shares Are Surging On Thursday

Shares of accommodations and hospitality services provider Target Hospitality Corp. TH are trading higher after the company provided a business update and revised its 2024 outlook following the termination of a significant contract.

Recently, the U.S. government notified Target Hospitality that the South Texas Family Residential Center (STFRC) contract will end on August 9, 2024. This contract contributed approximately $55.9 million to Target Hospitality’s revenue in 2023.

With the STFRC contract termination and other factors, Target Hospitality updated 2024 financial projections, with total revenue of $375 million – $385 million (consensus $396.10 million), down from the previous view of $410 million – $425 million, adjusted EBITDA of $184 million – $190 million (prior $195 million – $210 million), and capital spending of $25 million – $30 million, excluding acquisitions.

The Pecos Children’s Center (PCC) contract renewal is expected in November 2024, though Target Hospitality has excluded variable revenue from PCC in its revised outlook due to the fluctuating community population.

Target Hospitality anticipates zero net debt by the end of 2024, with over $350 million in total available liquidity.

As of May-end, Target Hospitality had $147 million in cash and no outstanding borrowings on its $175 million credit facility, resulting in a net leverage ratio of 0.1 times.

On March 25, 2024, Target Hospitality received an unsolicited proposal from Arrow Holdings S.àr.l., an affiliate of TDR Capital LLP, to acquire all outstanding shares for $10.80 per share.

A special committee of independent directors is currently reviewing the proposal with the assistance of financial and legal advisors. No decision has been made, and there is no assurance that a transaction will occur.

Price Action: TH shares are trading higher by 9.85% at $8.14 at last check Thursday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image via Shutterstock