On Monday, Jefferies began coverage on Drilling Tools International (NASDAQ:DTI), assigning a Hold rating to the stock with a price target set at $3.30.

The firm highlighted DTI’s extensive rental fleet, which includes over 65,000 tools, serving key oil basins in North America, particularly the Permian Basin. The company’s strategic emphasis on expanding its high-margin Premium Tools business and the introduction of the RotoSteer tool are expected to bolster earnings for the year 2024.

The analyst from Jefferies pointed out that while DTI’s focus on these areas is promising, the broader market’s approach to energy stocks remains cautious.

This cautious stance is due to uncertainties regarding the ‘next step’ for companies that follow an ‘acquire and optimize’ strategy. According to the analyst, DTI’s immediate challenge is to demonstrate the effectiveness of its business model.

The price target of $3.30 for DTI’s shares is based on a discounted cash flow (DCF) analysis. This valuation method takes into account the present value of the company’s expected future cash flows. The Hold rating suggests that the analyst believes the stock will perform in line with the market or the analyst’s coverage universe over the next six to twelve months.

Drilling Tools International has not yet responded publicly to the initiation of coverage by Jefferies.

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