On Monday, Morgan Stanley (NYSE:MS) initiated coverage on Vertiv Holdings Co. (NYSE: NYSE:VRT), a company specializing in thermal and power solutions for data centers, assigning an Overweight rating and setting a price target of $150.00. The firm's analysts highlighted Vertiv's significant exposure to a high-growth sector within U.S. industrials and its strategic position to capture a larger share of customer spending.
This optimism appears well-founded, as InvestingPro data shows Vertiv has delivered an impressive 171.69% return over the past year, with revenue growing at 13.2%.
The analysts pointed out that despite Vertiv's favorable positioning, the market has shown reluctance to factor sustained double-digit growth into the company's valuation. Currently, Vertiv's shares are trading at the lower end of Morgan Stanley's coverage universe when adjusted for growth valuation metrics. While the stock trades at a P/E ratio of 81.78, InvestingPro analysis indicates it's trading below its Fair Value, suggesting potential upside opportunity. The market's concern revolves around the durability of the company's growth momentum.
Morgan Stanley's analysis suggests that Vertiv's growth has not kept pace with the broader data center capital expenditure and construction spending over the past two years. This lag presents an opportunity for Vertiv to catch up in the coming years. Additionally, the analysts believe that the market underestimates the essential nature of Vertiv's products, as data centers cannot be completed without the power and thermal solutions that Vertiv provides.
The initiation of coverage with an Overweight rating is based on the firm's confidence in Vertiv's attractive valuation, a de-risked growth outlook for the next several years, and the anticipation of positive revisions ahead. Morgan Stanley's stance indicates a belief in the potential for Vertiv's stock to perform well moving forward.
In other recent news, Vertiv Holdings Co. has made several significant financial moves. The company successfully repriced its subsidiary Vertiv Group Corporation's existing $2.1 billion Term Loan, reducing the interest rate by 25 basis points, which is expected to save the company approximately $5 million in annual interest expenses.
Vertiv also reported an upward revision in its organic growth compound annual growth rate (CAGR), expecting 12-14% over the period from 2024 to 2029. The company anticipates approximately $14.4 billion in sales by 2029 and has increased its margin target for 2029 to about 25%.
Financial firms have been closely following Vertiv's performance. Barclays (LON:BARC) initiated coverage on Vertiv with an Equal Weight rating and a price target of $142, while Wolfe Research, Oppenheimer, Mizuho (NYSE:MFG) Securities, and UBS have maintained positive ratings on Vertiv's stock and raised their price targets. Vertiv also announced the promotion of Scott Armul to executive vice president, global portfolio, and business units, and plans to expand its liquid cooling capacity by 45 times by the end of 2023.
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