We believe there are several factors driving TRC Companies’ (TRR) recent price action. First, fiscal Q3 (March 31, 2015) operating results were released on May 6, 2015. Sales increased by 14% and net income by 240% over the comparable period in fiscal 2014. Another catalyst for TRR’s recent rise could also be attributed to the performance of competitor, peer and former GeoBargain, NVEE.
NVEE Reached Our Price Target, Can TRR?
We recently removed NV5 Holdings Inc. (NASDAQ:NVEE) from our GeoBargain list when its share price surpassed the $21.00 price target we set for the stock when, on February 18, 2015, we published, “NV5 Holdings’ (NVEE) Management: Been There, Done That, and Doing it Again”. The stock rose 117% during its tenure as a GeoBargain.
When comparing the current valuations of TRC Companies Inc. (NYSE:TRR) with NVEE it is noteworthy that TRR’s EV/Adjusted EBITDA multiple is 5.88 compared to NVEE’s of 10.66. If we consider TTM EV/EBITDA (unadjusted), the multiples are 7.86 for TRR and 12.16 for NVEE. NVEE has had a faster growth rate and recent acquisitions as a tailwind. While TRR is also getting its operations in gear with strong operating performance aided by an acquisition strategy its historical financial performance has been lumpy. If we give NVEE the edge for multiples and apply a conservative 25% discount to TRR’s multiples vs. NVEE’s, we see a reasonable valuation for TRR of around $12.50. We believe a healthy valuation gap is prudent since we are a little more confident that NVEE’s quarterly EPS growth rate will be less lumpy and specific financial guidance has been issued.
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