US Infrastructure Spending And Electrification Will Drive Market Expansion

Key Takeaways

• Large-scale electrification trends, infrastructure investment, and regulatory changes are driving sustained revenue and margin growth, positioning the company for market share gains and higher profitability.
  
• Strong cash flow and balance sheet strength enable aggressive acquisitions, supporting industry consolidation and outperformance compared to competitors.
  
• Regulatory shifts, high leverage, cyclical market exposure, rising competition, and supplier concentration all threaten growth, profitability, and operational stability.

Catalysts

Provides specialty equipment rental and sale services to electric utility transmission and distribution, telecommunications, rail, forestry, waste management, and other infrastructure-related industries in the United States and Canada.

• Analysts broadly agree that electricity infrastructure upgrade demand will remain strong, but the accelerated, multi-decade electrification push could drive a structural "step change" in grid investment needs, positioning Custom Truck for outsized, sustained revenue growth above current forecasts as utilities and contractors scramble to upgrade assets well beyond historical cycles.
  
• The analyst consensus sees resilient equipment order flow from infrastructure and federal spending, yet the combination of bonus depreciation measures and new legislative clarity could unlock a significant near-term "capex supercycle" from small and mid-size contractors, rapidly fueling both equipment sales and record recurring rental revenues, with a material upside to utilization and margin expansion.
  
• Continued modernization and replacement of older diesel-powered vehicle fleets-spurred by regulatory and customer-driven electrification-provides Custom Truck with the opportunity to capture market share from non-specialist competitors through its custom upfitting expertise, supporting higher average selling prices and robust gross margin expansion over the long term.
  
• Custom Truck's unrivaled national footprint and integrated service model enables it to address the growing complexity of 5G and broadband deployments, as well as smart city infrastructure upgrades, laying the groundwork for higher cross-selling rates, improved customer retention, and structurally advantaged net margins.
  
• With strong cash generation and rapidly deleveraging balance sheet, the company is uniquely positioned for aggressive M&A to consolidate smaller, regional competitors, potentially accelerating EBITDA growth and driving long-term earnings outperformance relative to industry peers.

Custom Truck One Source Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Custom Truck One Source compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Custom Truck One Source's revenue will grow by 6.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -1.9% today to 0.9% in 3 years time.
• The bullish analysts expect earnings to reach $21.1 million (and earnings per share of $0.1) by about September 2028, up from $-36.0 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 bullish analyst cohort, the company would need to trade at a PE ratio of 124.8x on those 2028 earnings, up from -35.3x today. This future PE is greater than the current PE for the US Trade Distributors industry at 22.0x.
• Analysts expect the number of shares outstanding to decline by 2.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Custom Truck One Source Future Earnings Per Share Growth

Risks

• Ongoing regulatory uncertainty, including possible future implementation of stricter EPA emission standards or shifts toward electrification, could require substantial capital investment in fleet upgrades or reduce demand for Custom Truck's core diesel-powered offerings, depressing revenue and compressing margins over time.
  
• The company's persistent high leverage, with net leverage at 4.66 times adjusted EBITDA and ambitions to reduce it below 3 times by 2026, raises risks to financial flexibility and could constrain earnings growth if market or operating conditions deteriorate.
  
• Custom Truck remains heavily exposed to cyclical end markets such as construction, utilities, and telecom, so economic downturns or reduced infrastructure spending could quickly erode both top-line revenue and net profitability.
  
• Intensifying competition from OEMs engaging in direct sales and digital marketplaces threatens to undermine Custom Truck's distribution model, potentially eroding market share and exerting downward pressure on revenue and margins.
  
• Reliance on a concentrated group of OEM suppliers for critical parts and equipment could expose the company to supply chain disruptions or unfavorable pricing terms, causing unexpected cost increases and margin contraction.

Valuation

• The assumed bullish price target for Custom Truck One Source is $9.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Custom Truck One Source's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.0, and the most bearish reporting a price target of just $5.5.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $21.1 million, and it would be trading on a PE ratio of 124.8x, assuming you use a discount rate of 12.3%.
• Given the current share price of $5.61, the bullish analyst price target of $9.0 is 37.7% 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.