Legislative Advances And International Expansion Will Transform Automated Enforcement

Key Takeaways

• Expanding U.S. legislation and international growth are driving increased adoption of automated traffic enforcement, supporting recurring, high-margin revenue and geographic diversification.
  
• Digital payments, smart city initiatives, and strong contract renewals are enhancing product retention, operational efficiency, and the stability of long-term earnings.
  
• Revenue and profitability are pressured by macro weakness, customer churn, contract concentration risk, slow SaaS adoption, and upfront investments that delay margin improvement.

Catalysts

Provides smart mobility technology solutions in the United States, Australia, Europe, and Canada.

• Recent legislation in Colorado and Nevada authorizing new photo enforcement programs, along with enabling legislation across the U.S. (including California), is expanding the total addressable market for automated traffic enforcement. This creates multi-year visibility and potential double-digit revenue growth in Government Solutions as new contracts convert to recurring ARR and begin contributing to top-line results.
  
• Demand for automated enforcement solutions is accelerating, with $60M in new annual recurring revenue contracted over the past year, high win rates in competitive bids, and continued expansion into cities adopting new traffic safety programs-this supports predictable, high-margin, SaaS-like service revenue and long-term earnings growth.
  
• International expansion, particularly in Europe with recent progress in Italy, France, Spain, and other countries, is opening new revenue streams while reducing geographic concentration risk, enabling diversified and sustainable top-line growth over time.
  
• Continued progression of smart city initiatives, digital payments, and the transition to contactless/cashless tolling (including bundled offerings for rental car operators and fleets) are driving increased product adoption and paving the way for higher net retention rates and improved operational leverage, which should support margin expansion.
  
• Increasing public-private partnerships, legislative focus on road safety, and the company's demonstrated ability to secure multi-year/renewal contracts (e.g., anticipated New York City renewal, major expansions in Chicago and Arizona) are underpinning a more resilient, recurring revenue base-likely contributing to stronger free cash flow conversion and more stable earnings over the long term.

Verra Mobility Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Verra Mobility's revenue will grow by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 26.0% in 3 years time.
• Analysts expect earnings to reach $289.5 million (and earnings per share of $1.37) by about August 2028, up from $39.0 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 17.9x on those 2028 earnings, down from 100.7x today. This future PE is lower than the current PE for the US Professional Services industry at 26.1x.
• Analysts expect the number of shares outstanding to decline by 3.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.48%, as per the Simply Wall St company report.

Verra Mobility Future Earnings Per Share Growth

Risks

• Continued macroeconomic headwinds and customer churn within the Fleet Management Company (FMC) segment are expected to cause further near-term revenue declines, which could lead to lower-than-expected top-line growth if macro weakness persists or stabilizes at a lower base, impacting both revenue and net earnings.
  
• The Commercial Services business is highly sensitive to travel demand; management is factoring in flattish travel volumes, and any significant downturn or stagnation in travel-especially signaled by TSA throughput-could put pressure on revenue, earnings, and lead to performance at the low end of guidance or below.
  
• A significant portion of Government Solutions revenue depends on its largest customer, New York City, and as the renewal contract remains unresolved, any delay, unfavorable terms, or loss of this contract introduces concentration risk and could cause material revenue and margin volatility.
  
• Expansionary investments, including international camera sales and upfront installation/setup costs ahead of new program deployments (especially in newly legislated markets), are driving margin dilution in Government Solutions, with management warning that margins may not accrete until late 2026, potentially depressing overall profitability and net margins.
  
• Although secular tailwinds exist, the T2 Parking Solutions segment is experiencing revenue declines and stagnation in SaaS sales, indicating either limited adoption or competitive headwinds that could continue to weigh on recurring revenue and constrain margin or earnings expansion.

Valuation

• The analysts have a consensus price target of $28.833 for Verra Mobility 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 $32.0, and the most bearish reporting a price target of just $23.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $289.5 million, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 7.5%.
• Given the current share price of $24.6, the analyst price target of $28.83 is 14.7% 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.