Vertiv's New Lithium Cabinets Expands Portfolio: Is the Stock a Buy?
Vertiv VRT is expanding infrastructure offerings for data centers through its latest Vertiv EnergyCore battery cabinets. These EnergyCore cabinets are factory-assembled with Lithium-Iron-Phosphate battery modules from Vertiv’s internally-powered battery management system.
Vertiv EnergyCore battery cabinets are compatible with most current and legacy three-phase uninterruptible power supply (UPS) systems, including the recently launched Trinergy and Liebert APM2.
These cabinets are very suitable for high-density environments. Since lithium batteries are more compact and lighter than VRLA alternatives, they allow users to deploy fewer battery cabinets in most applications. Vertiv’s intuitive interactive touchscreen HMI display provides visibility and control of the cabinet, operating system and installed batteries.
Vertiv Expanding Capacity to Support Clientele Growth
Vertiv is expanding capacity across liquid cooling, thermal, UPS, switchgear, busbar and modular solutions to accommodate AI-driven demand growth.
Liquid cooling is a must for next-generation chips that form the backbone for the rapid adoption of AI. It recently launched the MegaMod CoolChip, a liquid cooling-equipped prefabricated modular data center solution that is engineered to enable efficient and reliable AI computing.
Vertiv is expanding its North American manufacturing operations with a new facility in Pelzer, SC. The facility adds 215,000 square feet (about 20,000 square meters) of manufacturing space.
The facility will produce a variety of infrastructure solutions, including integrated modular solutions, modular power systems, and other integrated systems using Vertiv’s portfolio of power, cooling and IT infrastructure technologies for data centers.
A rich partner base that includes the likes of Ballard Power Systems BLDP and ZincFive is expected to drive top-line growth.
Ballard Power and Vertiv are collaborating on developing backup power applications for data centers and critical infrastructures, scalable from 200kW to multiple MWs. Vertiv has added the ZincFive BC Series UPS battery cabinets to its portfolio of battery systems available for data center backup power.
VRT Shares Ride on Strong Order Growth
VRT shares have surged 113.8% year to date (YTD), outperforming the broader Zacks Computer & Technology sector’s return of 22.8% and the Zacks IT Services industry’s appreciation of 8.3%.
It has been benefiting from strong order growth and backlog. Vertiv hit a backlog of $7 billion, which increased 47% year over year and 11% sequentially in the second quarter of 2024. Organic orders surged 57% year over year, and the book-to-bill ratio was 1.4 times.
This has helped VRT outperform its industry peers over the same timeframe, including ServiceNow NOW and Infosys INFY. INFY and NOW shares have gained 21.9% and 26%, respectively.
Vertiv now expects third-quarter 2024 order growth at low double-digits (10-15% range) despite tough comparisons. On a trailing 12-month basis, the order growth rate is expected between 30% and 35%. Solid AI-related demand is expected to provide a tailwind to 2025 order and sales growth.
YTD Performance
Image Source: Zacks Investment Research
Improved Liquidity Aids VRT’s Prospects
Vertiv’s focus on reducing debt is commendable. Net leverage was 1.8 times at the end of the second quarter, which was within VRT’s stated leverage target range of 1 time to 2 times.
It repriced the existing seven-year term loan worth $2.1 billion that reduced interest expense by 61 basis points, and resulted in interest savings of roughly $13 million per year.
Vertiv now expects 2024 free cash flow between $850 million and $900 million for 2024, reflecting improvement in profits.
VRT Shares Trade at a Premium
We point out that VRT stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
In terms of the trailing 12-month Price/Book ratio, VRT is trading at 25.06X, higher than its median of 16.93X and the broader Zacks Computer & Technology sector’s 10.04X.
Price/Book Ratio (TTM)
Image Source: Zacks Investment Research
VRT’s FY24 Earnings Estimates Trending Upward
For 2024, Vertiv expects revenues between $7.59 billion and $7.74 billion, indicating an organic growth rate of 12-14% year over year. Non-GAAP earnings are expected between $2.47 per share and $2.53 per share.
The Zacks Consensus Estimate for 2024 revenues is pegged at $7.75 billion, indicating year-over-year growth of 12.88%. The consensus mark for earnings is pegged at $2.59 per share, up by a penny over the past 30 days and indicating 46.33% year-over-year growth.
Vertiv Holdings Co. Price and Consensus
Vertiv Holdings Co. price-consensus-chart | Vertiv Holdings Co. Quote
Conclusion
We believe Vertiv’s growing dominance in the thermal management space for data centers is a major growth driver. An improving liquidity position helps VRT sustain its aggressive expansion strategy.
The company currently sports a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank stocks here.
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