Vertiv's Essential Role: Is VRT a Stock to Buy?

AI has been taking the world by storm, revolutionizing industries far and wide. From simplifying tasks like debugging code and summarizing data to advancing autonomous vehicles and aiding in pharmaceuticals, AI is undeniably reshaping the way we work and live. The last two years have seen its rapid rise, integrating deeply into diverse sectors.

In this evolving landscape, Vertiv Holdings Co. (VRT) stands in a prime position to capitalize on the AI boom. Specializing in cooling solutions for data centers, VRT is an essential player in the AI infrastructure. As the demand for AI and data processing grows, so does VRT's relevance and potential for growth.

The numbers don’t lie. VRT's stock has seen extraordinary gains. Over the past month, shares surged by 12.5%, with a remarkable 45.7% jump over the past three months. Even more impressive is the 92.4% growth over the past nine months and a staggering 177.9% increase in the past year. The stock closed the last trading session at $120.87.

Let’s take a closer look at the factors that could influence Vertiv's performance in the near future.

Recent Developments

On November 15, VRT announced the release of a complete 7MW reference architecture of the NVIDIA GB200 NVL72 platform, co-developed with NVIDIA Corporation (NVDA). The innovative platform transforms traditional data centers into AI-driven hubs, enabling the deployment of powerful AI applications.

As AI and data processing needs increase, VRT’s solutions are in high demand, driving potential for significant growth. VRT’s high-performance power and cooling systems, combined with its global scale, would allow customers to deploy AI data centers more quickly, efficiently, and flexibly.

In addition, on November 7, VRT launched its Vertiv™ liquid cooling product portfolio, featuring the Vertiv™ CoolPhase CDU and Vertiv™ CoolChip Fluid Network. These cutting-edge solutions support both liquid and hybrid air-liquid cooling environments, offering customers flexible and efficient thermal management.

With the surge in demand for AI and data processing, VRT’s advanced cooling technologies further enhance its growth prospects.

Strong Financials

For the fiscal 2024 third quarter that ended September 30, VRT’s net sales increased 19% year-over-year to $2.07 billion. Its adjusted operating profit grew 40.7% from the year-ago value to $416.90 million.

Additionally, the company’s adjusted net income and adjusted EPS rose 44.4% and 46.2% from the prior year’s quarter to $290.50 million and $0.76, respectively. As of September 30, 2024, the company’s cash and cash equivalents stood at $908.70 million, compared to $780.40 million on December 31, 2024.

Sound Historical Growth

Over the past three years, VRT’s revenue has grown at a CAGR of 15.5%. Its EBITDA rose at a CAGR of 34.4% during the period. Moreover, the company’s operation income (EBIT) and total assets increased at CAGRs of 44.3% and 19.1%, respectively.

Furthermore, during the same time frame, the company’s net income and EPS grew at respective CAGRs of 61.5% and 56.8%, respectively. The sustained performance highlights the company’s strong growth trajectory over the last few years.

Favorable Analyst Estimates

Analysts predict VRT’s revenue and EPS for the fiscal fourth quarter (ending December 2024) to rise by 15.5% and 45.4% year-over-year, reaching $2.15 billion and $0.81, respectively. The company has consistently exceeded consensus EPS estimates in each of the four trailing quarters, which is noteworthy.

For the full fiscal year ending December 2024, VRT’s revenue and EPS are expected to grow 13.9% and 51.9% from the previous year, reaching $7.82 billion and $2.69, respectively. The impressive growth reflects the company’s strong performance and ongoing upward momentum.

Looking ahead to the next fiscal year ending in December 2025, VRT is projected to see further growth, with revenue and EPS forecasted to rise by 17.4% and 28.8%, reaching $9.18 billion and $3.46, respectively. This indicates continued positive trends for the company’s financial performance.

High Profitability

VRT’s trailing-12-month gross profit margin of 36.48% is 14% higher than the industry average of 32.02%. Its trailing-12-month levered FCF margin stands at 18.62%, 177.1% higher than the industry average of 6.72%. Additionally, VRT’s trailing-12-month asset turnover ratio of 0.92x outperforms the industry average of 0.79x by 17%.

The company also boasts a trailing-12-month EBITDA margin of 19.80%, which is 40.6% above the sector average of 14.08%. Plus, its trailing-12-month net income margin of 7.72% surpasses the industry average of 6.39% by 20.8%.

POWR Ratings Reflects Optimism

VRT’s fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. Our proprietary rating system also evaluates each stock based on eight distinct categories.

VRT has a B grade in Sentiment, which is in line with its optimistic analyst estimates. In addition, the stock has a B grade for Quality, which is justified by its higher-than-average profitability metrics.

Within the Industrial - Equipment, it is ranked #45 out of 88 stocks. Beyond what I have stated above, we have also given VRT grades for Growth, Value, Momentum, and Stability. Get all VRT ratings here.

Bottom Line

With the rapid rise of AI factories, VRT has established itself as a key player in the AI revolution, providing essential power and cooling solutions that support these cutting-edge facilities. Recent developments further enhance its position as the company continues to innovate and expand its offerings.

Its strong financial performance, coupled with promising growth prospects and ongoing advancements, make it an integral part of the AI industry’s future.

How Does Vertiv Holdings Co (VRT) Stack Up Against Its Peers?

While VRT's near-term prospects appear stable, it may be worth considering its industry peers, who boast even more impressive POWR Ratings. So, consider these three A (Strong Buy) or B-rated (Buy) stocks from the Industrial - Equipment industry:

Mitsubishi Electric Corporation (MIELY)

Makita Corporation (MKTAY)

LSI Industries Inc. (LYTS)

To explore more A or B-rated Industrial - Equipment stocks, click here.

What To Do Next?

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VRT shares rose $0.52 (+0.43%) in premarket trading Monday. Year-to-date, VRT has gained 151.88%, versus a 24.40% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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