Vertiv: Partnership With Nvidia And Intel Drives Opportunistic Growth - Wait For Pullback

Core Insights - VRT has shown significant bottom-line improvements attributed to gross margins of 34.5% (+2 points YoY) and adjusted operating margins of 15.1% (+3.6 points YoY) due to better supply chain conditions and higher average selling prices (ASPs) [1][2] - The company has raised its FY2024 guidance, projecting net sales of $7.61B (+11.9% YoY), adjusted operating margin of 17.5% (+2.2 points YoY), and adjusted EPS of $2.32 (+31% YoY) [2] - VRT is well-positioned to fund growth opportunities internally, with free cash flow generation of $10 million (+30% YoY) and FY2024 free cash flow guidance of $825 million (+6% YoY) [3] Financial Performance - VRT's FQ1'24 earnings reported net sales of $1.63B (+7.2% YoY) and adjusted EPS of $0.43 (+79.1% YoY), driven by strong product sales and SaaS revenues [7] - The backlog has grown from $5.52B in FQ423 to $6.3B in FQ1'24, with a book-to-bill ratio of 1.5x, indicating strong demand [9] - The company has raised its FY2024 capex guidance to $200 million (+56.3% YoY) to enhance manufacturing capacity [16] Market Position and Trends - VRT operates in the data center infrastructure sector, focusing on power management and thermal management solutions, which are critical during the ongoing cloud transition and AI boom [6] - The company has strategic partnerships with major tech firms like Nvidia and Intel, which are expected to drive future growth [6][7] - International demand remains strong, particularly in the APAC and EMEA regions, with product sales and SaaS revenues showing positive growth [8] Valuation and Growth Projections - VRT's forward EV/EBIT valuation is 26.83x, significantly higher than the sector median of 15.44x, reflecting market optimism [18] - Consensus estimates suggest VRT will achieve a CAGR of +12% in revenue and +30.3% in adjusted EPS through FY2026 [19] - The company has a relatively higher net-debt-to-EBITDA ratio of 2.44x, which may pose risks despite its strong cash flow generation [13] Investment Considerations - VRT's stock has shown potential for capital appreciation, with a long-term price target of $149.90 based on consensus FY2026 adjusted EPS estimates [21] - The company offers quarterly dividends, providing a decent income stream for investors [21] - Recent insider selling has occurred, with $1.62B of shares sold in the last twelve months, balanced by management's share repurchases [21]