New Legislation Will Expand Government Solutions' Automated Enforcement Market

Key Takeaways

• Expansion of cashless toll roads and automated enforcement legislation offers significant long-term growth opportunities, boosting revenue and net margins.
  
• Improved capital efficiency through strategic share repurchases and debt refinancing enhances earnings, with adjusted EPS growth outpacing EBITDA growth.
  
• Heavy dependence on New York City and execution risks in new markets could threaten revenue growth and profitability amidst declining Parking Solutions performance and economic uncertainties.

Catalysts

Engages in the provision of smart mobility technology solutions and services in the United States, Australia, Europe, and Canada.

• Verra Mobility anticipates resilient travel volumes driven by GDP growth, which should support high single-digit revenue growth in Commercial Services, positively impacting overall revenue and earnings.
  
• The expansion of cashless toll roadways in the U.S. continues to provide a long-term growth opportunity for Verra Mobility's Commercial Services, likely benefiting revenue growth and net margins through increased efficiency and adoption.
  
• Government Solutions is gaining traction with new legislation allowing for expanded automated photo enforcement, which adds significant total addressable market (TAM), potentially leading to substantial future revenue growth.
  
• T2 Parking Solutions is focusing on stabilizing operations and increasing SaaS-enabled permits management solutions. Although 2025 is expected to be flat, exit momentum and expected future growth in 2026 could positively impact revenue and EBITDA margins.
  
• The company's strategic share repurchases and debt refinancing have improved capital allocation efficiency, resulting in expectations that adjusted EPS growth will outpace adjusted EBITDA growth, boosting earnings per share due to lower borrowing costs and reduced share count.

Verra Mobility Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Verra Mobility's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 21.4% in 3 years time.
• Analysts expect earnings to reach $231.8 million (and earnings per share of $1.46) by about March 2028, up from $31.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, down from 102.6x today. This future PE is greater than the current PE for the US Professional Services industry at 21.3x.
• Analysts expect the number of shares outstanding to decline by 4.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.16%, as per the Simply Wall St company report.

Verra Mobility Future Earnings Per Share Growth

Risks

• Verra Mobility's reliance on New York City for a significant portion of its Government Solutions revenue could be a risk, especially as they await the outcome of a competitive RFP for automated enforcement. Any negative changes in this contract could impact revenue stability and growth.
  
• The 13% decline in Parking Solutions revenue highlights a potential weakness in this segment, which could negatively affect overall profitability and net margins if not addressed successfully.
  
• The competitive request for proposals (RFPs) in new growth markets such as California presents execution risk. Failure to secure contracts in these areas could impede expected revenue growth.
  
• Economic uncertainties and potential reductions in travel demand could impact the Commercial Services segment, as TSA volume trends are volatile and heavily influence this segment's revenues.
  
• The discussed goodwill impairment in the T2 Parking Solutions business raises concerns about the valuation and future earnings potential of this segment, which might put pressure on net income and profitability.

Valuation

• The analysts have a consensus price target of $29.417 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 $25.0.
  
• 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 $231.8 million, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $20.22, the analyst price target of $29.42 is 31.3% 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.