Target Hospitality (TH) is expected to benefit from a rural artificial intelligence buildout, supported by its scale, execution and location, while its "take or pay" contracts offer upside to 2027 estimates, Morgan Stanley said Monday.

Originally viewed as a Permian oil field services provider with a separate government arm, Target Hospitality is now pivoting toward serving data center, power and critical-minerals end markets, with its turnkey offering and track record positioning it to capture a major buildout of data centers in remote locations, according to the note.

Morgan Stanley assumes pipeline wins and variable revenue in its model, in addition to existing contracts, resulting in annualized revenue of approximately $845 million and annualized EBITDA of $305 million by the end of 2027, nearly 20% above management's base case as of Q2, the note added.

The brokerage said its base case multiple aligns with peers and Target Hospitality's historical average, although it is somewhat conservative given the company's experienced management, track record and greater visibility into revenue growth.

Morgan Stanley initiated coverage of Target Hospitality with an overweight rating and a price target of $22.

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