Data centers these days are a vital part of operations for a lot of businesses out there. Whether it is processing other people’s data, or using them as a way to house data and applications, the data center has a panoply of uses that make it necessary all over. And Target Hospitality (TH) may prove to be one of the best ways to invest in data centers without digging into the tech. A recent upgrade at Stifel suggests that is so, and investors piled in, in a big way. Shares of Target Hospitality surged up nearly 6.5% in Tuesday morning’s trading.
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Stifel, via analyst Stephen Gengaro—who has nearly a four-star rating on TipRanks—declared Target Hospitality was a “…back door data center play.” Gengaro also upped the rating on Target Hospitality from Hold to Buy, and also hiked the price target from $7.50 per share to $11. That represents an upside potential of over 36% against the closing price on Monday, reports note.
So how does Target Hospitality become a major name in data centers? One word: lodging. Gengaro noted that Target Hospitality can provide lodging for data center customers, up to around 5,000 rooms’ worth, over the next few years. This includes “…turnkey accommodations, logistical services, and culinary offerings….” Gengaro acknowledges that this contribution is “…difficult to quantify…,” but notes that “…this multi-year growth opportunity is very large and TH has several opportunities in the pipeline.”
Case in Point
In fact, Target Hospitality underscored its back-door connections to the data center market with a recent move in the southwestern United States. It set up a multi-year lease agreement for a data center campus therein, though the company it made the deal with was not named. This included everything Gengaro mentioned previously, like facilities management, support services, and premium culinary offerings.
The term of the agreement is to run through September 2027, and will generate a reported $43 million in “…committed minimum revenue over its initial term.” That is a pretty solid win, and a few of those back-to-back could make Target Hospitality a major player in fairly short order.
Is TH a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on TH stock based on one Buy and two Holds assigned in the past three months, as indicated by the graphic below. After a 15.97% loss in its share price over the past year, the average TH price target of $10 per share implies 16.82% upside potential.
