Vertiv (VRT)

Data center products and services company Vertiv (NYSE:VRT) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 24.2% year on year to $2.04 billion. On top of that, next quarter’s revenue guidance ($2.35 billion at the midpoint) was surprisingly good and 3.7% above what analysts were expecting. Its non-GAAP profit of $0.64 per share was 3.9% above analysts’ consensus estimates.

Company Overview

Formerly part of Emerson Electric, Vertiv (NYSE:VRT) manufactures and services infrastructure technology products for data centers and communication networks.

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Companies with similar offerings as Vertiv include Eaton (NYSE:ETN), Emerson Electric (NYSE:EMR), and Schneider Electric (EPA:SU)

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Vertiv’s 14.5% annualized revenue growth over the last five years was exceptional. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Vertiv’s annualized revenue growth of 17.8% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Vertiv’s organic revenue averaged 18.5% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Vertiv reported robust year-on-year revenue growth of 24.2%, and its $2.04 billion of revenue topped Wall Street estimates by 5.2%. Company management is currently guiding for a 20.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.9% over the next 12 months, a deceleration versus the last two years. Still, this projection is noteworthy and suggests the market is forecasting success for its products and services.

Vertiv’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 33.3% gross margin over the last five years. Said differently, Vertiv paid its suppliers $66.70 for every $100 in revenue.

This quarter, Vertiv’s gross profit margin was 33.7%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Vertiv has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.4%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Vertiv’s operating margin rose by 10.6 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Vertiv generated an operating profit margin of 14.3%, up 1.9 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Vertiv’s EPS grew at an astounding 104% compounded annual growth rate over the last five years, higher than its 14.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Vertiv’s earnings to better understand the drivers of its performance. As we mentioned earlier, Vertiv’s operating margin expanded by 10.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Vertiv, its two-year annual EPS growth of 90% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q1, Vertiv reported EPS at $0.64, up from $0.43 in the same quarter last year. This print beat analysts’ estimates by 3.9%. Over the next 12 months, Wall Street expects Vertiv’s full-year EPS of $3.06 to grow 21.7%.

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.

Vertiv has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 7.9% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Vertiv’s margin expanded by 6.5 percentage points during that time. This is encouraging because it gives the company more optionality.

Vertiv’s free cash flow clocked in at $264.5 million in Q1, equivalent to a 13% margin. This result was good as its margin was 6.8 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Vertiv’s five-year average ROIC was 12.3%, higher than most industrials businesses. This illustrates its management team’s ability to invest in profitable growth opportunities and generate value for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Vertiv’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Vertiv reported $1.47 billion of cash and $2.93 billion 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 $1.72 billion of EBITDA over the last 12 months, we view Vertiv’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $136.7 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.

We were impressed by how significantly Vertiv blew past analysts’ organic revenue expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Looking ahead, the company raised its full-year revenue guidance and reiterated full-year EPS guidance, which is a relief in this uncertain environment. Zooming out, we think this quarter featured some important positives. The stock traded up 18.5% to $84.99 immediately after reporting.

Updated: May 22, 2025 at 11:04 PM EDT

Are you wondering whether to buy Vertiv or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There is a lot to like about Vertiv. For starters, its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months. On top of that, its organic revenue growth has been marvelous, and its rising cash profitability gives it more optionality.

Vertiv’s P/E ratio based on the next 12 months is 27.9x. Looking across the spectrum of industrials businesses, Vertiv’s fundamentals clearly illustrate it’s a special business. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $113.51 on the company (compared to the current share price of $104.26), implying they see 8.9% upside in buying Vertiv in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.