Persisting Construction Weakness And Rising Costs Will Limit Returns

Key Takeaways

• Infrastructure and urbanization trends support demand, but ongoing market headwinds may cause inconsistent growth and hinder significant revenue acceleration.
  
• Margin expansion faces pressure from persistent delivery costs and inflation, while subdued demand could slow deleveraging and gradual earnings improvement.
  
• Weak core demand, construction market uncertainty, margin pressures, and elevated leverage threaten long-term growth, pricing power, and capital flexibility despite large enterprise-driven sales.

Catalysts

Provides turnkey temporary space solutions in the United States, Canada, and Mexico.

• Although robust activity in infrastructure and large-scale non-residential construction projects supports the company’s strong pending order book—which is up 7% year-over-year—persistent weakness in local construction markets may continue to limit total unit-on-rent growth, constraining top-line revenue inflection beyond the current forecasted range.
  
• While secular trends in urbanization and the need for flexible infrastructure solutions provide a long runway for demand, ongoing macroeconomic headwinds and the cyclical nature of commercial construction could delay a consistent return to sustained volume growth, potentially leading to uneven revenue and EBITDA progression.
  
• Although rising penetration of Value-Added Products and Services is enhancing average revenue per unit and driving the business closer to its 20–25% revenue target from VAPS, continued pressures in delivery and installation margins due to seasonal logistics inefficiencies and a slower ramp of in-sourcing could hold back anticipated margin expansion in the near term.
  
• Despite the company’s scale advantages and operational efficiencies—which allow WillScot to better absorb input cost inflation and deploy capital into fleet upgrades—persistent high material and logistics costs, along with a wide competitive set, may continue to weigh on net margin recovery if top-line pricing power does not keep pace with inflation.
  
• While WillScot’s strong free cash flow generation and proactive balance sheet management (including debt refinancing and capital returns via buybacks/dividends) position it for growth, a prolonged environment of subdued demand from its core construction, retail, and education customers may delay deleveraging targets and result in only gradual improvement in earnings per share.

WillScot Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on WillScot Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming WillScot Holdings's revenue will grow by 2.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.6% today to 13.2% in 3 years time.
• The bearish analysts expect earnings to reach $341.2 million (and earnings per share of $2.19) by about May 2028, up from $14.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, down from 323.9x today. This future PE is lower than the current PE for the US Construction industry at 24.0x.
• Analysts expect the number of shares outstanding to decline by 4.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.95%, as per the Simply Wall St company report.

WillScot Holdings Future Earnings Per Share Growth

Risks

• Revenue declined by 5% year-over-year and average units on rent dropped 5% for modular and 16% for storage, which suggests continued weakness in core volume demand and may limit long-term revenue and earnings growth if not offset by price and value-added services.
  
• The broader construction market remains uncertain, as evidenced by the Architectural Billings Index at 44% in March and a 17% decline in nonresidential construction starts, raising the risk of sustained underutilization of WillScot’s modular fleet and downward pressure on revenues and EBITDA.
  
• Sales growth is currently driven by large enterprise customers, while local account demand is weak and not expected to recover soon, which could cap top-line growth potential and reduce pricing power, thereby impacting net margins in future years.
  
• Logistics challenges persist, with delivery and installation margins contracting year-over-year due to lower-margin transportation activity and fixed cost in-sourcing initiatives, increasing cost structure and potentially weighing on net profit margins if not resolved.
  
• Despite steps to manage debt, leverage remains at 3.5 times, and rising interest rates or a failure to meaningfully reduce leverage could constrain future capital deployment flexibility, dampening shareholder returns and earnings growth.

Valuation

• The assumed bearish price target for WillScot Holdings is $28.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of WillScot Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $28.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $341.2 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $26.54, the bearish analyst price target of $28.0 is 5.2% 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.