UL Solutions (ULS)

Safety certification company UL Solutions (NYSE:ULS) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 7.1% year on year to $783 million. Its GAAP profit of $0.49 per share was 9.9% above analysts’ consensus estimates.

Company Overview

Founded in 1894 as a response to the growing dangers of electricity in American homes and businesses, UL Solutions (NYSE:ULS) provides testing, inspection, and certification services that help companies ensure their products meet safety, security, and sustainability standards.

The sector has historically benefitted from steady government spending on defense, infrastructure, and regulatory compliance, providing firms long-term contract stability. However, the Trump administration is showing more willingness than previous administrations to upend government spending and bloat. Whether or not defense budgets get cut, the rising demand for cybersecurity, AI-driven defense solutions, and sustainability consulting should benefit the sector for years, as agencies and enterprises seek expertise in navigating complex technology and regulations. Additionally, industrial automation and digital engineering are driving efficiency gains in infrastructure and technical consulting projects, which could help profit margins.

UL Solutions competes with other global testing and certification providers such as Intertek Group (LSE:ITRK), SGS (SWX:SGSN), Bureau Veritas (EPA:BVI), and TÜV SÜD. In the software and advisory space, it faces competition from specialized compliance software providers and consulting firms.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $3.00 billion in revenue over the past 12 months, UL Solutions is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, UL Solutions’s sales grew at a mediocre 4.3% compounded annual growth rate over the last three years. This shows it couldn’t generate demand in any major way and is a tough (but perhaps misleading) starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a stretched historical view may miss recent innovations or disruptive industry trends. UL Solutions’s annualized revenue growth of 7% over the last two years is above its three-year trend, suggesting some bright spots.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Industrial and Consumer, which are 43.8% and 43.4% of revenue. Over the last two years, UL Solutions’s Industrial revenue averaged 8.8% year-on-year growth while its Consumer revenue averaged 5.8% growth.

This quarter, UL Solutions reported year-on-year revenue growth of 7.1%, and its $783 million of revenue exceeded Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to grow 5.8% over the next 12 months, similar to its two-year rate. Still, this projection is above the sector average and suggests the market is forecasting some success for its newer products and services.

UL Solutions has been an efficient company over the last five years. It was one of the more profitable businesses in the business services sector, boasting an average operating margin of 15.5%.

Analyzing the trend in its profitability, UL Solutions’s operating margin rose by 1.3 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, UL Solutions generated an operating margin profit margin of 19.9%, up 2.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

UL Solutions has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 9.7% over the last five years, quite impressive for a business services business.

Taking a step back, we can see that UL Solutions’s margin expanded by 3.5 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

UL Solutions’s free cash flow clocked in at $109 million in Q3, equivalent to a 13.9% margin. This result was good as its margin was 2.4 percentage points higher than in the same quarter last year, building on its favorable historical trend.

UL Solutions reported $255 million of cash and $736 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $744 million of EBITDA over the last 12 months, we view UL Solutions’s 0.6× net-debt-to-EBITDA ratio as safe. We also see its $22 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see UL Solutions beat analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $79 immediately following the results.

Updated: December 4, 2025 at 11:06 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own UL Solutions, you should also grasp the company’s longer-term business quality and valuation.

UL Solutions doesn’t top our investment wishlist, but we understand that it’s not a bad business. Although its revenue growth was mediocre over the last three years, its growth over the next 12 months is expected to be higher. And while UL Solutions’s diminishing returns show management's prior bets haven't worked out, its stellar ROIC suggests it has been a well-run company historically.

UL Solutions’s P/E ratio based on the next 12 months is 39.5x. This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $91.71 on the company (compared to the current share price of $77.15).