I Expect Customer-Focused Initiatives To Improve Future Performance

Key Takeaways

• WillScot's operational focus and strategic initiatives are expected to enhance customer satisfaction, leading to sustainable growth and improved margins.
  
• Expansion into adjacencies and effective capital allocation may boost their market reach and revenue while supporting moderate growth in a stabilizing market.
  
• Nonresidential construction slowdowns, order delays, competition, and broken deal costs threaten revenue growth, margins, and financial flexibility for WillScot Holdings.

Catalysts

Designs, delivers, and services onsite and on-demand space solutions in North America.

• WillScot's focus on operational efficiency and customer-focused initiatives is set to improve their order-to-cash processes and further enhance customer satisfaction. These efforts are expected to drive sustainable growth and improve margins in 2025. (Impact: Net Margins, Earnings)
  
• The company's expansion into adjacencies like climate control storage and sanitation solutions is poised to double these segments' contributions in 2025, offering opportunities to reach new customers and grow the total addressable market. (Impact: Revenue)
  
• WillScot plans to leverage digital marketing, customer service, and sales tools, plus enhance their pricing strategy with technology in 2025, which should boost cross-selling and improve overall profitability. (Impact: Revenue, Net Margins)
  
• Despite the current challenging market conditions, WillScot is positioned for moderate growth in 2025 as the non-residential construction market stabilizes, enhancing the potential for lease revenue growth. (Impact: Revenue)
  
• The company has a disciplined capital allocation strategy, highlighted by increased share repurchase authorization, which could drive earnings per share growth in 2025. (Impact: Earnings)

WillScot Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WillScot Holdings's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.0% today to 22.0% in 3 years time.
• Analysts expect earnings to reach $578.6 million (and earnings per share of $3.8) by about December 2027, up from $25.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.7x on those 2027 earnings, down from 267.0x today. This future PE is lower than the current PE for the US Construction industry at 29.8x.
• Analysts expect the number of shares outstanding to decline by 6.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.23%, as per the Simply Wall St company report.

WillScot Holdings Future Earnings Per Share Growth

Risks

• Nonresidential construction starts are down 14% year-over-year, impacting future revenue growth from the modular and storage leasing sectors.
  
• Delays in order activity and increased election-related uncertainty could exacerbate timing issues for project commencements, affecting revenue and margin forecasts.
  
• Volume-related headwinds, particularly from smaller rate-sensitive commercial construction projects, add uncertainty to revenue projections and net margins.
  
• Increasing competition in the storage sector, particularly with stagnant spot rates in traditional storage, poses a risk to maintaining revenue levels and market share.
  
• Broken deal costs, including the McGrath termination fee, impact the company's immediate financial performance and could constrain available capital for other initiatives or shareholder returns.

Valuation

• The analysts have a consensus price target of $44.11 for WillScot Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $61.0, and the most bearish reporting a price target of just $35.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.6 billion, earnings will come to $578.6 million, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 8.2%.
• Given the current share price of $36.48, the analyst's price target of $44.11 is 17.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.