Analyzing Custom Truck One Source’s Newly Added Risk Factors After Nesco Merger

Missouri-based Custom Truck One Source (CTOS) is a provider of specialty equipment to customers in the telecom, electricity distribution, and rail markets. Its equipment is used in the maintenance, repair, and installation of infrastructure assets.

In April 2021, the company merged with Nesco Holdings in a $1.48 billion transaction to create a one-stop shop for specialty equipment rental. In addition to rental, the company also sells new and used equipment and provides parts and service tools. The merger with Nesco resulted in Platinum Equity becoming the majority shareholder in Custom Truck One Source. (See Analysts’ Top Stocks on TipRanks)

Let’s take a look at the company’s latest financial performance and newly added risk factors.

Q2 Financial Results and 2021 Outlook

Custom Truck One Source reported revenue of $375.1 million for the second quarter of 2021. That compared to $294.5 million in the same quarter last year and beat the consensus estimate of $325.9 million. A loss per share of $0.53 narrowed from a loss of $0.27 in the same quarter last year but missed the consensus estimate of a profit per share of $0.02. The results include the contribution from Nesco.

Custom Truck One Source ended Q2 with $27.21 million in cash and $1.36 billion in debt, including capital leases.

For full-year 2021, the company anticipates revenue in the range of $1.50 billion to $1.55 billion. It expects adjusted EBITDA in the band of $320 million to $340 million.

Risk Factors

The new TipRanks Risk Factors tool shows 51 risk factors for Custom Truck One Source. Since Q4 2020, the company has updated its risk profile to add six new risk factors.

Custom Truck One Source cautions that the interests of its majority shareholder Platinum Equity may conflict with the interests of the other shareholders. For example, the company says that Platinum may lock it out of certain acquisition opportunities that may be complementary to its business.

Custom Truck One Source tells investors that it carries a significant debt and may need to borrow more in the future. Some of the debt bears variable interest rates. It warns that servicing the debt may reduce the cash available to invest in growing its business.

The company cautions that the disruption of its manufacturing activities because of equipment failure, power outages, or labor issues could adversely affect its earnings and financial condition. Further, such manufacturing disruptions could cause an unfavorable impact on the company’s stock price.

The majority of Custom Truck One Source’s risk factors fall under the Finance and Corporate category, with 55% of the total risks. That is below the sector average of 59%. The company’s stock price has gained about 14% year-to-date.

Analysts’ Take

Following Custom Truck One Source’s Q2 earnings report, Oppenheimer analyst Scott Schneeberger reiterated a Buy rating on CTOS stock but lowered the price target to $10 from $12. Schneeberger’s new price target suggests 18.76% upside potential.