(By Balaseshan) CIBC World Markets Inc. analyst Jeff Fetterly initiated coverage of Poseidon Concepts Corp. (TSE:PSN), an oil and natural gas service and supply company, with a "Sector Performer" rating and $17.50 price target.
Fetterly said Poseidon is an emerging provider of fluid handling solutions, with five tank models that are offered to E&P producers on a rental basis in plays across North America. He estimates demand for fluid systems has increased by about 200% since 2009, with Poseidon's market increasing to more than 10% in 2012.
While competition to Poseidon's current product line is accelerating, the analyst believes it is the company's ability to respond to this competitive threat and continue evolving its business that will be a key to sustainability over the medium term and support share price appreciation in the near term.
Fetterly said future growth is expected to be a combination of: further penetration for its tank products; introduction of its products into international regions and non-oil & gas applications; expansion into other portions of the fluid cycle; and/or vertical integration with traditional rental offerings.
Poseidon is trading largely in line with the average of other providers whose core operations revolve around rentals and/or logistics. With a meaningful short interest, the analyst would not be surprised to see continued volatility in its shares.
The brokerage established its 2012 EBITDA estimate of $219.40 million and its 2013 estimate of $274.80 million.
PSN is trading down 1.93% at $12.19 on Tuesday.