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A stock may pull back after a breakout, often to the 50-day line. A rebound from the first or second visit to the 50-day can be a buying opportunity, especially for existing holders to add some shares.

Lodging company Target Hospitality (TH) is the IBD Stock Of The Day, as the stock is finding support following its early-July breakout and a major gap-up.

Texas-based Target Hospitality operates hotels and temporary housing units for company workforces and government initiatives, as well as providing hospitality, maintenance, janitorial and food services. Its lodging network consists of 1,600 modular housing units for oil, gas and mining operations.

In total, it has more than 16,000 rooms across 31 sites in Montana, North Dakota, New Mexico and Texas. And its government services segment, which makes up a bulk of the company's revenue, offers hospitality services to support domestic humanitarian aid efforts.

Target Hospitality has beaten analyst estimates for nine straight quarters. For its second quarter, Target Hospitality posted record quarterly revenue of $110 million, up 46% from the year-ago quarter. And it reported earnings of 27 cents per share, up sharply from 2 cents a year ago.

In July, Target Hospitality announced it enhanced its lease and services agreement for its Expanded Humanitarian Contract, as part of the government's effort to support displaced persons. The expanded contract includes amenities, services and infrastructure solutions for roughly 6,400 people, representing a 60% population increase from the initial contract.

The recurring lease and infrastructure enhancement revenue will generate a minimum of $390 million for Target Hospitality annually. Along with the services revenue component, the contract could provide a maximum of $575 million in annual value. Roughly 73% of Target Hospitality's 2022 revenue will come from its government contracts.

Following the expanded contract, Target Hospitality boosted its full-year revenue outlook by 53%, bringing it to a record range of $500 million to $510 million.

Among traditional lodging firms, Hyatt Hotels (H) and Airbnb (ABNB) are both gradually improving. But it's a tough market as the travel industry returns to normalcy following the coronavirus pandemic.

Hyatt Hotels posted positive earnings of 46 cents per share for its quarter ending in June. Its quarterly losses have slowed, and the company is posting positive sales growth. Airbnb is rounding the corner, reporting positive earnings in three of the last four quarters.

TH stock broke out from its double-bottom base after July's news and had a major gap-up, finding support at its 50-day moving average of 13.05. It may rebound bullishly from the 50-day line or could form a new base. But the stock is not actionable right now.

The relative strength line for TH stock is right at highs. The RS line, the blue line in the chart provided, tracks a stock's performance vs. the S&P 500 index.

Target Hospitality ranks second in IBD's Leisure-Lodging industry group, according to the IBD Stock Checkup. TH stock only trails hotel giant Marriott International (MAR). TH stock has a 92 Composite Rating out of a possible 99. The Composite Rating combines a number of key technical indicators into a single, easy-to-read score.

And the company's strong earnings awarded it an EPS Rating of 78. TH stock has outperformed most of its peers in the S&P 500 over the last 12 months, as indicated by its perfect 99 Relative Strength Rating.

Shares slid 3.75% to 13.59 on Friday.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison

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