Vertiv Holdings Co Bullish on Strong Q3 Results & Honeywell Deal

Vertive Stock Up 284% Since March

Vertiv Holdings Co (NYSE:VRT) is a great tech stock that recently got a little more interesting. In addition to delivering strong third-quarter results, the company has set up a blockbuster deal with Honeywell International Inc (NYSE:HON).

Vertiv stock has been performing exceptionally well since the coronavirus-fueled sell-off in March. VRT stock is up 65.5% year-to-date and has surged 284% since March.

Despite the tough economic climate and headwinds caused by the COVID-19 pandemic, Vertiv continues to perform well and its long-term outlook remains solid. Of the eight analysts following Vertiv stock, all of them have issued “buy” ratings.

The highest 12-month forecast has VRT stock hitting $25.00, which represents a 13% increase from the current level. That forecast seems a little conservative though; a 12-month stock forecast of $32.00 seems more realistic, representing a 75% increase from the current level.

Chart courtesy of StockCharts.com

VRT Stock Overview

Vertiv provides infrastructure technologies and life cycle services to data centers, communication networks, and commercial and industrial environments. (Source: “Vertiv Fact Sheet,” Vertive Holdings Co, last accessed November 11, 2020.)

The company’s power management systems ensure that its customer’s applications run optimally and continuously, and that they scale with business needs.

Vertiv’s customers are located in the Americas, Asia-Pacific, Europe, the Middle East, and Africa.

Data Center Deal With Honeywell

In October, Vertiv announced that it was teaming up with Honeywell to create integrated solutions to help data centers reduce energy consumption. (Source: “Honeywell and Vertiv to Improve Sustainability for Data Center Operations Across the Globe,” Vertiv Holdings Co, October 14, 2020.)

The products from this partnership are expected to be available by the end of 2020.

Honeywell’s Building Technologies division makes management systems for data centers that run air conditioning and sprinklers. Vertiv makes power-management systems for data centers.

Data centers are big energy hogs. In 2018, data centers consumed about one percent of the entire world’s energy use. Data centers require uninterrupted power and systems that manage voltage and current. Next to servers, power-management systems are a data center’s biggest expense.

In addition to costing a lot of money, the large amount of power used within a data center can increase the risk of downtime.

Reducing consumption, increasing efficiency, and increasing reliability can save businesses a lot of money.

Keep in mind, data centers were already big business before the coronavirus pandemic. The work-from-home environment has ramped up the need for businesses to house and host key processes in the cloud.

A market trend study released in January says that, by 2025, data centers are expected to handle 175 zettabytes of data. That’s up from 21 zettabytes of data by the end of 2021. A zetta is a one with 21 zeros behind it, and is equivalent to a billion terabytes or a trillion gigabytes. (Source: “2020 Data Center Market Trends to Watch,” Schneider Electric, January 6, 2020.)

Strong Third-Quarter Performance

On November 4, Vertiv announced that its revenue for the third quarter, ended September 30, increased 8.5% year-over-year to $1.2 billion (8.3% organically, excluding the impact of foreign currency). The strong sales were juiced by the growing cloud and colocation market segments. (Source: “Vertiv Delivers Strong Third Quarter Operating Performance,” Vertiv Holdings Co, November 4, 2020.)

Vertiv’s backlog continued to be strong, hitting a record $1.9 billion at the end of September, increasing by more than $90.0 million since the end of June.

The company reported a third-quarter net loss of $15.8 million ($0.05 per share), versus a third-quarter 2019 net loss of $13.7 million ($0.12 per share). The increased net loss includes $80.0 million of restructuring program expenses.

Vertiv previously announced a restructuring program that’s expected to result in $85.0 million in annualized run-rate savings by 2023. The restructuring came from “headcount efficiencies” and various activities that will support the company’s long-term strategic initiative to hold fixed costs constant as it grows.

The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved 31% to $179.0 million, and its adjusted EBITDA margin increased by 270 basis points to 15.4%, buoyed by higher contribution margin and lower fixed costs.

Business Outlook

For the fourth quarter, Vertiv expects to report:

• Total revenue between $1.24 billion and $1.26 billion, compared to $1.2 billion in Q4 2019
• Organic revenue growth of six to eight percent, compared to one percent in Q4 2019
• Adjusted EBITDA between $175.0 and $185.0 million, compared to $149.0 million in Q4 2019

Analyst Take

A provider of power management systems for data centers, Vertiv Holdings Co is a wonderful company with great long-term growth potential.

Despite strong headwinds from the global coronavirus pandemic, Vertiv reported solid third-quarter results, and the company expects that demand for its data and digital solutions will continue to be strong.