Morgan Stanley raises Target Hospitality PT on accretive contract win

Investing.com -- Morgan Stanley raised its price target on the lodging services provider to $25 from $22, citing an accretive contract win in its West Texas home territory and growing conviction in near-term execution on its pipeline. The broker reiterated its "overweight" rating.

The new price target reflects 8 times Morgan Stanley’s fiscal year 2027 adjusted EBITDA estimate of $319 million, up from $287 million previously and 22% above consensus of $261 million.

The revision follows the company’s announcement in late August of a 1,100-bed contract with a new customer. Morgan Stanley cited three factors behind its increased fundamental upside estimate.

The broker assumes 1,400 beds are converted from Target Hospitality Corp.’s pipeline of more than 20,000 beds into revenue by 2027 at a $150 average daily rate. It also assumes a Lithium Americas mining contract is renewed beyond its initial term of September 2027, though with fewer operational workers than during the construction phase.

In addition, Morgan Stanley estimates $30 million in additional run-rate variable revenue exiting 2027 that it believes management can capture with occupancy but which has been excluded from current guidance.

Morgan Stanley said Target Hospitality’s competitive advantages include its scale and vertical integration and its West Texas home territory, which the bank described as one of the more data center-friendly geographies in the country.

The 1,100-bed contract arose because a data center had accelerated construction activities ahead of schedule and the developer needed to house a group of workers immediately, the broker said.

Target moved the population from an under-utilized community into neighboring lodges in its network, freeing up existing resources for the new customer at what Morgan Stanley called a minimal redeployment cost.

While the customer was not named, Morgan Stanley noted that multiple companies are developing data centers in the area. Microsoft is developing the 2.7-gigawatt “Project Kilby” in partnership with Chevron in Reeves County, Texas; Amazon has an 8,000-acre site in Pecos County, Texas, that it plans to power using 7.7 gigawatts of behind-the-meter turbines; and Prometheus Hyperscale is developing a 1.5-gigawatt campus in Reeves County.

For the third quarter of 2026, full-year 2026 and full-year 2027, Morgan Stanley now models total revenue of $121 million, $438 million and $843 million, respectively, up from prior estimates of $117 million, $418 million and $778 million.

The broker’s adjusted EBITDA estimates for those periods are now $30 million, $111 million and $319 million, versus $34 million, $104 million and $287 million previously.

Morgan Stanley said the change was driven by the margin profile of the new contract, which it believes to be accretive, with its fiscal year 2027 adjusted EBITDA margin estimate of 37.8% about 100 basis points higher than its prior estimate.

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