Investor Day: Higher 20-22% Organic Growth Through 2030

Research evidence excerpt

Investor Day: Higher 20-22% Organic Growth Through 2030

cution (+50bps), and

includes continued investment in new products and capacity. Productivity gains include ~5% gross

productivity from lean initiatives, robotics, automation, and footprint optimization, and ~2.5% gross

productivity from supplier cost actions and improved cost analytics. Mgmt’s internal commercial

execution margin benefit target is 100bps (vs. 50bps assumed), leaving ~50bps of cushion for

inflation, tariffs, costs associated with capacity additions and other unexpected headwinds. Service

business carries higher margins, but with growth (~20% annually) tracking roughly in line with OE,

there is no mix benefit.

M&A Would Add to Growth. VRT’s M&A activity has accelerated recently and outlined further

acquisitions as a core growth lever. Mgmt is targeting differentiated technologies and products that

can drive above-market growth, and be gross margin accretive. Mgmt sees typical run rate being

$750m-$1bn of M&A per year, largely tuck-in deals either focused on early stage technologies it

can scale, filling capability gaps, or expansion of its power and thermal TAM. Notably, however, the

company sees $28B of deployable capital through 2030 now and does not rule out the potential

for a large deal.

Where We Stand. We continue to view VRT as a high-quality play on the DC infrastructure build- Stephen Volkmann, CFA * | Equity Analyst

out though maintain Hold. The top-tier growth outlook appears well reflected in current valuation (212) 284-2031 | svolkmann@jefferies.com

(28x '27E EV/EBITDA), and we think upside to consensus is constrained by capacity and throughput Chirag Patel * | Equity Associate

limits, while rapid capacity add risks NT margin pressure, in our view. (212) 284-1773 | cpatel@jefferies.com