Telos: DA Davidson raises PT to $4 from $2.25, maintains Neutral rating.

Telos: DA Davidson raises PT to $4 from $2.25, maintains Neutral rating.

Telos Corporation (TLS) saw its stock surge 55.25 percent to $3.69, up $1.31, on Monday following the company's second quarter 2025 earnings report. The cybersecurity solutions provider reported revenue of $36 million, a 26 percent increase over the previous year, exceeding guidance of $32.5 million to $34.5 million [1]. This robust revenue growth was driven by security solutions, which accounted for approximately 90 percent of the company's total revenue.

The company's adjusted EBITDA improved significantly, posting a $400,000 profit, which exceeded guidance of a $2.1 million loss to $600,000 loss. Telos also reported an operating cash flow of $7 million and free cash flow of $4.6 million, a 12.9 percent margin. The company deployed $4 million to repurchase approximately 1.5 million shares at $2.69 per share.

DA Davidson, a leading financial services firm, has raised its price target for Telos from $2.25 to $4.00, while maintaining a Neutral rating on the stock. The firm noted that the company's latest quarterly results marked a notable improvement compared to previous quarters, with improved year-over-year changes across several important metrics. DA Davidson highlighted that while comparisons and expectations were relatively easy following several years of struggles in a challenging environment, the quarter demonstrated "tangible progress towards a turnaround."

Despite the positive earnings report, Telos faces challenges, including a lower year-over-year gross margin due to revenue mix changes and a contraction in the secure networks segment. Additionally, the company's confidential IT security work for the federal government provides limited transparency on growth drivers.

Telos is expected to expand its enrollment centers to 500 locations by the end of the year, with new enrollments driving year-over-year performance despite a decline in TSA PreCheck program renewals due to the five-year anniversary of COVID. The company's capital allocation strategy prioritizes the use of free cash flow for share buybacks, with opportunistic tuck-in acquisitions and transformational M&A opportunities considered if they provide clear value for shareholders.

References:
[1] https://finance.yahoo.com/news/telos-corp-tlsrp-pfd-q2-070404934.html
[2] https://za.investing.com/news/analyst-ratings/rumbleon-stock-shows-signs-of-turnaround-as-da-davidson-maintains-neutral-rating-93CH-3834024
[3] https://www.rttnews.com/3564624/telos-corp-stock-surges-55-on-strong-revenue-growth-in-q2.aspx