On Wednesday, Wolfe Research adjusted its financial outlook for Vertiv Holdings Co. (NYSE:VRT), increasing the price target to $149.00 from the previous $128.00, while maintaining an Outperform rating on the company's stock. The revision followed Vertiv's 2024 Investor Event held in Atlanta, GA, on November 18 and 19, where the company updated its five-year plan that was initially introduced at its 2023 investor conference.
During the event, Vertiv revealed an upward revision in its organic growth compound annual growth rate (CAGR), now expecting 12-14% over the period from 2024 to 2029, an increase from the previously projected 8-11% range for 2023-2028. This adjustment is based on market growth forecasts, which have been revised to 9-12% from the prior 7-10%. Consequently, the company now anticipates approximately $14.4 billion in sales by 2029, a slight increase over the current Wall Street consensus of $14.2 billion.
Additionally, Vertiv has increased its margin target, aiming for approximately 25% in 2029, compared to the earlier goal of around 20%+ during the period from 2026 to 2028. The company has identified three primary factors that will drive margin expansion, with operational leverage contributing the most significant impact, estimated at approximately 400 basis points.
The company's management also indicated that the updated financial framework suggests incremental margins of 32-33%, which Wolfe Research views as conservative, suggesting that normalized incremental margins could be closer to 35%. Vertiv also plans to increase its annual investment forecast by $75 million at the midpoint, expecting to spend between $150-200 million on growth initiatives, technology, and capacity expansion.
Vertiv's capital allocation strategy has been revised as well, with projections of a substantial increase in surplus capital from $3.3 billion to around $10 billion over the next five years, net of anticipated capital expenditures (capex). The capex to sales ratio is expected to remain between 2.5-3%, with spending reaching about 3% of sales in 2025. While mergers and acquisitions remain a priority, the company has indicated that it does not have grand ambitions in this area. The updated strategy could potentially lead to approximately $0.79 in cash earnings per share (EPS) accretion by 2029 through capital deployment.
InvestingPro Insights
Vertiv Holdings Co.'s (NYSE:VRT) updated five-year plan and Wolfe Research's increased price target are supported by several key metrics and insights from InvestingPro. The company's strong financial performance is reflected in its impressive revenue growth of 13.2% over the last twelve months, with quarterly revenue growth accelerating to 18.99% in Q3 2024. This aligns with Vertiv's upward revision of its organic growth CAGR to 12-14% for 2024-2029.
InvestingPro Tips highlight that net income is expected to grow this year, and 12 analysts have revised their earnings upwards for the upcoming period. These tips corroborate Vertiv's optimistic outlook and Wolfe Research's bullish stance. The company's profitability is further underscored by its adjusted operating income of $1.216 billion and an operating income margin of 16.15% over the last twelve months.
Investors should note that Vertiv is trading near its 52-week high, with a remarkable 216.82% price total return over the past year. This performance is consistent with the company's strong financial projections and market position in the growing data center infrastructure sector.
For readers interested in a deeper analysis, InvestingPro offers 21 additional tips for Vertiv Holdings Co., providing a comprehensive view of the company's financial health and market position.
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