Target Hospitality (TH), mcap=$1621m

TH pitch:
– Set to strongly benefit from the lifting of Title 42.
– Government may need 60-130% more beds for unaccompanied children, equivalent to several facilities the size of TH’s 2k Pecos facility.
– Title 42 has been lifted and this will lead to a flood of refugee encounters, including unaccompanied children.
– Government lacks housing capacity for children awaiting immigration processing.
– Desperate situation expected to worsen by summer.
– TH is currently operating under a 1-year contract, likely to be extended for 10 years.
– Recent concerns about no unaccompanied children at TH’s Pecos facility are overblown.
– Facility is temporarily warm stacked due to seasonal low volumes.
– Government is actively seeking new housing capacity for an anticipated surge later in the year.
– TH’s transformation from swing capacity to baseload capacity, and contract extension could see a structural re-rating in TH’s 5x EBITDA multiple.

TH valuation:
– Currently trades at 5.5x 2023 EBITDA (excluding CAPEX revenue and growth EBITDA) and 3.5x EBITDA including growth EBITDA.

Exp. gain: 80-100%.

Full write-up (free guest account required):