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Morgan Stanley Initiates TETRA Tech With Overweight Rating, $10 Price Target

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Shares of TETRA Technologies, Inc. (NYSE: TTI) do not reflect the company’s longer-term FCF generation potential and the cyclical upside from onshore and short-cycle offshore exposure, Morgan Stanley’s Ole Slorer said in a report. He initiated coverage of the company with an Overweight rating and a price target of $10.

Offshore activity drives a major share of profitability in the consolidated completions fluids market and TETRA Tech’s vertically integrated model has resulted in attractive margins in recent years.

Although the offshore industry is likely to remain sluggish through 2017, TETRA Tech’s short-cycle offshore exposure offers “a good way to play an out-of-consensus theme,” analyst Ole Slorer commented. Moreover, favorable supply-side dynamics and onshore exposure offered “near-term margin stability and a cyclical "hedge.”

Catalysts Ahead

Slorer mentioned that there were some upcoming catalysts that could unlock TETRA Tech’s underlying value, including:

  • Resolution of balance sheet concerns at TETRA Tech’s compression MLP [CCLP]
  • Greater market confidence in distribution sustainability
  • Management’s indication of a likely sale of the company’s Offshore Services business, which could further de-risk the balance sheet

“We think this could come in the next 12-18 months if valuations reach an acceptable level. Long term, we see the removal of TTI's legacy decommissioning liabilities as another step toward revealing the significant cash generation lying beneath the surface,” the analyst wrote.

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Latest Ratings for TTI

DateFirmActionFromTo
Nov 2016Scotia Howard WeilUpgradesSector PerformSector Outperform
Nov 2016Credit SuisseDowngradesOutperformNeutral
Oct 2016Wells FargoInitiates Coverage OnOutperform

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