BofA Initiates Vertiv At Buy On Potential For Margin Expansion

Although Vertiv Holdings Co’s VRT shares may remain volatile in the near term due to uncertainties caused by order and shipment timing, the company has several levers to drive margin expansion, according to BofA Securities.

The Vertiv Analyst: Andrew Obin initiated coverage of Vertiv with a Buy rating and a price target of $20.

The Vertiv Thesis: Among the levers the company has for margin expansion are cost reduction, 5G tailwind, and R&D benefits, Obin said in the note.

Vertis is incurring costs to upgrade IT systems, the benefits from which are likely to accrue in 2021 and beyond, the analyst noted.

Meanwhile, Vertiv has reduced COVID-19-related costs by $60 million to protect margins. Obin added that the company also has a plan for permanent cost reductions between $50 million and $70 million, which would hold it in good stead in 2021.

While improvements in procurement and pricing are gaining momentum, growing 5G adoption is expected to boost the telecom end market, which contributed around 20% of Vertiv’s revenues, he said.

“In the medium term, growing R&D investments should shift the revenue mix to higher-margin products.” The analyst wrote, while adding that new channel partnerships to expand distribution will also drive margins higher.

VRT Price Action: Shares of Vertiv were trading down 0.38% at $15.63 at the time of publication Thursday.