Is Vertiv Holdings (VRT) Still a Buy after Earnings?

Today, we’ll be discussing a business that is incredibly well-positioned to benefit from the AI boom, but doesn’t get nearly as much attention as it should.

Vertiv Holdings (NYSE: VRT) does not produce GPUs or hardware, but this is who you go to for more or less anything else you’d need to start a data center — thermal management and monitoring systems, cooling solutions, and even rack systems, among other things.

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As it turns out, this is quite the beneficial position to be in — as VRT has beaten earnings estimates for 11 quarters in a row. The company’s last quarterly report was last week, on October 22 — and it saw earnings per share (EPS) come in at $1.24, far above the $1 consensus estimates. Even better, this was a double beat — revenues came in at $2.68 billion, whereas analysts were expecting to see $2.59 billion.

The price of VRT shares has seen a nice 8.43% bump since then, bringing year-to-date (YTD) returns up to 57.28%.

As impressive as that is, it does beg the question — is there more upside to be had, and has the opportunity passed? I think it hasn’t — so let’s take a look at why I believe that the rally hasn’t yet run its course.

For one, our proprietary quant rating system, Zen Ratings, puts VRT in the top 3% of the more than 4,600 equities that we track. That means that a thorough review of 115 factors has highlighted Vertiv Holdings as a likely outperformer. Stocks that rank in the top 5% are given a Zen Rating of A — and they’ve produced an average annual return of 32.52% since the early 2000s.

Each Zen Rating consists of 7 Component Grade ratings, and they can clue us in on the stock’s specific strengths. For example, the aforementioned YTD performance puts VRT in the 83rd percentile in terms of Momentum — while its impressive balance sheet has secured a place for it in the 89th percentile when it comes to Financials.

Sentiment is another strong point — here, Vertiv Holdings ranks in the top 3%. Top Wall Street analysts have already begun raising their price targets — Citigroup’s Andy Kaplowitz (a top 1% rated analyst) raised his price forecast from $192 to $198, while UBS researcher Amit Mehrotra (a top 16% rated analyst) hiked his price target all the way from $173 to $201. Last week, the stock received a total of 6 reiterated Strong Buy ratings, as well as 3 Buy ratings and a lone Hold rating.

With all of that in mind, the stock’s Growth Component Grade rating is the chief reason why I think it still has room to run. In this category, VRT ranks in the top 10% — chiefly on account of an estimated earnings growth rate of 37.85% per year.

As an addendum, although it doesn’t rank particularly highly in terms of Value, readers should note that the stock is currently trading at a price-to-earnings (P/E) ratio that is approximately 2.3 times lower than the average of its industry.

VRT enjoys a unique position — it is set to continue benefitting from the AI boom, but unlike pure-play AI businesses, it isn’t tied to huge R&D expenses, and, perhaps more importantly, it doesn’t operate in an ultra-competitive niche.

The more you look at the last earnings report, the more things you’ll find that support a bullish thesis. Net sales saw a 28.4% increase on a year-over-year (YoY) basis — in the same timeframe, product revenues saw a 33.9% increase, and the company’s already impressive backlog swelled to $9.5 billion.

There’s one last thing to consider and keep in mind. VRT is within striking distance of both its 52-week high and its all-time high (ATH). There’s a fair chance that we’ll see a round of profit taking, at least until the company’s next earnings report — but since the company’s long-term growth prospects are both intact and improving, that shouldn’t worry investors with a long time horizon.

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