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Baird downgrades WillScot Mobile Mini stock as growth story shifts to returns focus

EditorEmilio Ghigini
Published 10/24/2024, 05:04 AM
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On Thursday, Baird has downgraded WillScot (NASDAQ:WSC) Mobile Mini (NASDAQ:MINI_old) Holdings Corp. (NASDAQ:WSC) stock from Outperform to Neutral, adjusting the price target to $42.00. The shift in rating reflects concerns following a survey on the portable storage rental market and other macroeconomic data points. The Baird analyst noted that the change in WillScot Mobile Mini's investor base, from those favoring growth to those seeking returns, could affect the company's future valuation.

The analyst remarked that the evolution of WillScot Mobile Mini from a company known for its rapid growth to one focused on high returns is not negative but represents a change in its business narrative. This transition is expected to have implications on the company's cash tax liability, which has historically been around zero percent, potentially impacting future cash flow.

Furthermore, the analyst indicated that a dividend payment from WillScot Mobile Mini might be on the horizon. This speculation arises alongside investor inquiries regarding the possibility of the company considering a sale. The downgrade and new price target come as the firm assesses the potential impact of these strategic shifts on WillScot Mobile Mini's financial outlook.

WillScot Mobile Mini has been known for its hyper-growth strategy, but as the company pivots towards prioritizing returns, there is an anticipation of changes in its financial structure and investor composition. The analyst's commentary suggests that these changes are already influencing investor expectations and could lead to a reevaluation of the company's stock performance.

In other recent news, WillScot Holdings Corporation expanded its board by appointing Worthing Jackman, a former director at Waste Connections (NYSE:WCN), Inc. This expansion is part of WillScot's strategy to strengthen its leadership and governance structures. The company also announced a new $1 billion share buyback program indicating its confidence in its financial position.

Meanwhile, analysts have been providing their insights on the company's prospects. Oppenheimer maintained an Outperform rating, expecting the company's adjusted EBITDA to grow in the third quarter of 2024. Barclays, however, downgraded the stock from Overweight to Equalweight following a failed deal, while Baird maintained its Outperform rating, citing the company's robust unit-level returns and high free cash flow yield. DA Davidson reiterated a Buy rating, expressing confidence in the company's potential to navigate through existing market challenges and capitalize on future prospects.

WillScot reported a 4% year-over-year increase in revenues for Q2, generating $121 million in free cash flow during the quarter. The company revised its full-year outlook, anticipating lower revenues in the second half of the year but expecting a stronger sequential pickup in Q4 and record growth in 2025. These are among the recent developments for the company.

InvestingPro Insights

To complement Baird's analysis of WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC), recent data from InvestingPro offers additional context. The company's market capitalization stands at $7.13 billion, with a P/E ratio of 38.39, suggesting a premium valuation compared to industry peers. This aligns with the InvestingPro Tip indicating that WSC is "Trading at a high earnings multiple."

Despite the downgrade, WillScot Mobile Mini maintains impressive financial metrics. The company boasts a gross profit margin of 55.08% for the last twelve months as of Q2 2024, supporting the InvestingPro Tip highlighting "Impressive gross profit margins." This robust profitability could provide a cushion as the company transitions from a growth-focused strategy to one emphasizing returns, as noted in the Baird analysis.

Interestingly, while the article mentions the possibility of future dividend payments, an InvestingPro Tip points out that WSC "Does not pay a dividend to shareholders" currently. This information, combined with the analyst's speculation about potential dividend initiation, could be particularly relevant for investors considering the stock's future income potential.

For readers seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for WillScot Mobile Mini, providing a deeper dive into the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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