Advanced CRM And In-Sourcing Will Improve Project Efficiency

Key Takeaways

• Strategic initiatives in sales productivity and in-sourcing aim to drive both revenue and net margins through operational efficiencies and VAPS focus.
  
• Capital allocation strategies, including share buybacks and leverage containment, indicate potential EPS growth from improved debt leverage ratios.
  
• Macro-economic challenges and high leverage may impact revenue growth and financial flexibility, with inefficiencies and uncertain trade policies adding to the risks.

Catalysts

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

• The order book for both modular and storage products is up 7% year-over-year, supporting expectations for new lease activation levels in upcoming quarters. This growth potential could positively impact revenue as new orders convert into completed projects.
  
• Initiatives to enhance sales productivity, such as the roll-out of an advanced CRM and pricing engine, combined with increased sales headcount, are expected to drive revenue growth, particularly from local and enterprise accounts.
  
• The emphasis on Value-Added Products and Services (VAPS), which accounted for 17% of Q1 revenue, aims to increase this to 20-25% over a 3
• to 5-year horizon. This shift is likely to improve revenue and contribute to higher net margins due to the premium nature of these services.
  
• In-sourcing initiatives for logistics and field operations are set to improve delivery and installation margins. This operational efficiency may enhance EBITDA margins and overall profitability.
  
• The company’s capital allocation strategy, including the focus on share buybacks and containment of leverage, suggests potential earnings per share (EPS) growth, given the projected decrease in debt leverage ratios over the long term.

WillScot Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WillScot Holdings's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.6% today to 20.5% in 3 years time.
• Analysts expect earnings to reach $534.6 million (and earnings per share of $2.11) by about May 2028, up from $14.9 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 14.2x 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

• Macro-related end market uncertainty and persistent recessionary pressures, reflected in weaker local accounts and specific sectors like nonresidential construction, could impact WillScot's revenue and longer-term growth initiatives.
  
• Potential changes in trade policy and tariffs create an uncertain market environment, which could indirectly affect customer demand and revenue despite no direct impact on the company's P&L.
  
• A sequential decline in revenue, driven by lower volumes for both modular and storage units, suggests challenges in maintaining or growing net margins if these trends persist.
  
• Logistics and delivery inefficiencies, with margin contractions attributed to lower seasonal transportation activity and in-sourcing initiatives that are not yet fully productive, could negatively affect net margins and competitive differentiation.
  
• Continued high leverage at 3.5x, with expectations to decrease only through earnings growth, poses a risk if earnings targets are not met, potentially impacting financial flexibility and shareholder returns.

Valuation

• The analysts have a consensus price target of $36.654 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 $45.0, and the most bearish reporting a price target of just $28.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $534.6 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $26.54, the analyst price target of $36.65 is 27.6% 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.