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Vertiv (VRT) Loses 10% in a Month: Should You Buy the Dip?
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Vertiv (VRT - Free Report) shares have declined 9.9% in the past month, underperforming the Zacks Computer & Technology sector’s loss of 5% and the S&P 500’s drop of 0.5%.
The drop can be attributed to apprehensions over VRT’s ability to maintain order growth amid a challenging macroeconomic environment and persistent inflation. The muted prospect of the telecommunication sector was also a concern, along with headwinds in China.
However, the second-quarter 2024 earnings results (Jul 24) reflected continued order momentum. Organic orders (excluding foreign exchange) surged 57% year over year, and the book-to-bill ratio was 1.4x in the second quarter.
Vertiv hit a backlog of $7 billion, which increased 47% year over year and 11% sequentially at the end of the second quarter. The strong order growth and backlog are likely to significantly improve top-line growth visibility over the long term.
Year to date, VRT shares have surged 62.4% year to date, outperforming the broader Zacks Computer & Technology sector’s return of 18.2% and the Zacks IT Services industry’s gain of 0.9%.
VRT also outperforms industry peers, including ServiceNow (NOW - Free Report) , Infosys (INFY - Free Report) and Cerence (CRNC - Free Report) , over the same timeframe. INFY and NOW shares have gained 22.9% and 13.1%, respectively, while CRNC shares have declined a massive 83.5% on a year-to-date basis.
YTD Performance
Image Source: Zacks Investment Research
However, VRT stock is not so cheap, as the Value Style Score of D suggests a stretched valuation at this moment.
In terms of the trailing 12-month Price/Book ratio, VRT is trading at 20.96X, higher than its median of 10.9X and the Zacks Computer & Technology sector’s 9.94X.
Price/Book Ratio (TTM)
Image Source: Zacks Investment Research
Strong Order Growth Drives 2024 View
Vertiv offers cooling and power management infrastructure technologies primarily addressing data center providers. It is riding on strong AI-driven order growth. The growing focus on thermal management by data center providers bodes well for Vertiv.
The company now expects third-quarter 2024 order growth at low double-digit (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.
For the third quarter of 2024, Vertiv expects revenues between $1.94 billion and $1.99 billion, indicating an organic growth rate of 12-16% year over year. Non-GAAP earnings are expected between 65 cents and 69 cents per share.
The Zacks Consensus Estimate for third-quarter revenues is pegged at $1.98 billion, indicating year-over-year growth of 13.53%. The consensus mark for earnings is pegged at 70 cents per share, up 7.7% over the past 30 days and indicating 34.62% year-over-year growth.
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 $7.74 billion, indicating year-over-year growth of 12.77%. The consensus mark for earnings is pegged at $2.58 per share up 6.2% over the past 30 days and indicating 45.76% year-over-year growth.
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. It currently has 22 manufacturing plants globally.
Next-generation chips that form the backbone for rapid adoption of AI liquid cooling are a must. VRT has started production of CoolTera CDU in two of its global manufacturing facilities rapidly accelerating capacity to support liquid cooling demand.
Vertiv’s improving liquidity makes the stock attractive. 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. Liquidity strengthened to $1.2 billion.
Vertiv expects 2024 free cash flow between $850 million and $900 million for 2024, reflecting improvement in adjusted profits.
Conclusion
Vertiv’s growing dominance in the thermal management space for data centers is a key catalyst. A strong liquidity position will help it to sustain its aggressive expansion strategy.
We believe the dip in Vertiv’s shares now offers a massive opportunity for growth-oriented investors. This Zacks Rank #2 (Buy) stock has a Growth Style Score of B, 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 (Strong Buy) stocks here.
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Vertiv (VRT) Loses 10% in a Month: Should You Buy the Dip?
Vertiv (VRT - Free Report) shares have declined 9.9% in the past month, underperforming the Zacks Computer & Technology sector’s loss of 5% and the S&P 500’s drop of 0.5%.
The drop can be attributed to apprehensions over VRT’s ability to maintain order growth amid a challenging macroeconomic environment and persistent inflation. The muted prospect of the telecommunication sector was also a concern, along with headwinds in China.
However, the second-quarter 2024 earnings results (Jul 24) reflected continued order momentum. Organic orders (excluding foreign exchange) surged 57% year over year, and the book-to-bill ratio was 1.4x in the second quarter.
Vertiv hit a backlog of $7 billion, which increased 47% year over year and 11% sequentially at the end of the second quarter. The strong order growth and backlog are likely to significantly improve top-line growth visibility over the long term.
Vertiv Holdings Co. Price and Consensus
Vertiv Holdings Co. price-consensus-chart | Vertiv Holdings Co. Quote
VRT Stock Beats Sector YTD
Year to date, VRT shares have surged 62.4% year to date, outperforming the broader Zacks Computer & Technology sector’s return of 18.2% and the Zacks IT Services industry’s gain of 0.9%.
VRT also outperforms industry peers, including ServiceNow (NOW - Free Report) , Infosys (INFY - Free Report) and Cerence (CRNC - Free Report) , over the same timeframe. INFY and NOW shares have gained 22.9% and 13.1%, respectively, while CRNC shares have declined a massive 83.5% on a year-to-date basis.
YTD Performance
Image Source: Zacks Investment Research
However, VRT stock is not so cheap, as the Value Style Score of D suggests a stretched valuation at this moment.
In terms of the trailing 12-month Price/Book ratio, VRT is trading at 20.96X, higher than its median of 10.9X and the Zacks Computer & Technology sector’s 9.94X.
Price/Book Ratio (TTM)
Image Source: Zacks Investment Research
Strong Order Growth Drives 2024 View
Vertiv offers cooling and power management infrastructure technologies primarily addressing data center providers. It is riding on strong AI-driven order growth. The growing focus on thermal management by data center providers bodes well for Vertiv.
The company now expects third-quarter 2024 order growth at low double-digit (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.
For the third quarter of 2024, Vertiv expects revenues between $1.94 billion and $1.99 billion, indicating an organic growth rate of 12-16% year over year. Non-GAAP earnings are expected between 65 cents and 69 cents per share.
The Zacks Consensus Estimate for third-quarter revenues is pegged at $1.98 billion, indicating year-over-year growth of 13.53%. The consensus mark for earnings is pegged at 70 cents per share, up 7.7% over the past 30 days and indicating 34.62% year-over-year growth.
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 $7.74 billion, indicating year-over-year growth of 12.77%. The consensus mark for earnings is pegged at $2.58 per share up 6.2% over the past 30 days and indicating 45.76% year-over-year growth.
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. It currently has 22 manufacturing plants globally.
Next-generation chips that form the backbone for rapid adoption of AI liquid cooling are a must. VRT has started production of CoolTera CDU in two of its global manufacturing facilities rapidly accelerating capacity to support liquid cooling demand.
Vertiv’s improving liquidity makes the stock attractive. 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. Liquidity strengthened to $1.2 billion.
Vertiv expects 2024 free cash flow between $850 million and $900 million for 2024, reflecting improvement in adjusted profits.
Conclusion
Vertiv’s growing dominance in the thermal management space for data centers is a key catalyst. A strong liquidity position will help it to sustain its aggressive expansion strategy.
We believe the dip in Vertiv’s shares now offers a massive opportunity for growth-oriented investors. This Zacks Rank #2 (Buy) stock has a Growth Style Score of B, 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 (Strong Buy) stocks here.