Is WillScot Holdings Corporation (WSC) the Most Undervalued Industrial Stock to Buy According to Analysts?

We recently compiled a list of the 8 Most Undervalued Industrial Stocks to Buy According to Analysts. In this article, we are going to take a look at where WillScot Holdings Corporation (NASDAQ:WSC) stands against the other undervalued industrial stocks.

Despite labor shortages, supply chain disruptions, and uncertain demand, the manufacturing industry remains on the front foot. Market experts believe that the production of industrial goods— a segment consisting of aircraft, automobiles, chemicals, computers, heavy machinery, oil, and steel— is expected to see strong momentum in the near term. This broader industry is expected to be supported by the generational pivot from machine-based assembly lines to “Smart Factories.” The industry continues to focus on robotics, the Internet of Things (IoT), Augmented Reality (AR), and numerous other cutting-edge technologies.

As per MarketsandMarkets, the global Industry 5.0 should reach US$255.7 billion by 2029, demonstrating a CAGR of ~31.2 % between 2024 - 2029. The experts opine that numerous factors are expected to propel this growth, including rapid technological advancements in AI, robotics, and Industrial 3D Printing, among others. These advancements respond to the increased demand for customized products and personalized experiences and promote a human-centric approach to manufacturing, empowering workers with advanced tools and technologies.

Economic Conditions and Impact on Industrial Demand

The economy has been demonstrating mixed signals when it comes to the future of expansion. As per Newmark, consumer spending, industrial production, and inflation readings have positively exceeded anticipations in Q2 2024. However, the labor market has been cooling, with firms continuing to face the challenge of increased interest rates.​ According to the report released by the firm in mid-August, the container traffic at the US ports increased to the highest level in 2 years, with shippers hedging against disruption and retailers gradually stacking up inventories to reach normal levels. The company anticipates annualized growth in imports across the latter half of 2024.

Manufacturing construction spending touched new heights, coming at $121.5 billion in May 2024, approximately double the pre-COVID-19 5-year average. While The South is collecting a significant share of this investment, the manufacturing growth has been driving additive demand for industrial space. Moving forward, evolving and tech-enabled trends, along with new players in e-commerce, should continue to drive demand.

Additionally, the company believes that consumer spending has been mixing in-store, online, and omnichannel behaviors. This is because well-established retailers are investing in all such options. The report highlighted that ~42% of e-comm orders previous year involved stores, demonstrating an increase from ~27% in 2015. New e-comm entrants- mainly social media platforms monetizing audiences throughout the world- continue to join the race. At the expected ~6.7% CAGR over the upcoming few years, e-comm growth should continue to fuel industrial demand. An expected 1.2 msf of logistics space is required to help every additional $1.0 billion in e-comm sales gains.

According to the CommercialEdge market report for September, the industrial sector rebalanced in 2024 and it continues to again grow at a healthy pace after witnessing softer demand earlier. Census Bureau figures demonstrate a 1.3% rise in e-commerce sales for Q2 2024 and 6.7% YoY growth, with the segment's share of core retail sales touching the highest level since the peak of COVID-19. The industrial space is also getting the support from growing warehouse and storage sector, which added ~25,000 jobs so far this year after declining ~8.5% between May 2022 and December 2023. Finally, expectations about Amazon increasing its lease activity hold up well for the broader industrial sector.

Our methodology

To make a list of the 8 Most Undervalued Industrial Stocks to Buy According to Analysts, we used a Finviz screener to extract stocks from the relevant industry. Next, we chose the ones that are trading lower than the forward earnings multiple of 23.52x (since the broader market trades at ~23.52x, as per WSJ). Finally, we ranked the stocks according to their potential upside, as of October 8. We also mentioned the hedge fund sentiments around each stock, as of Q2 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Aerial shot of a modular space surrounded by poratable storage units.

WillScot Holdings Corporation (NASDAQ:WSC)

Forward P/E as of October 8: 18.35x

Number of Hedge Fund Holders: 53

Average Upside Potential: 26.06%

WillScot Holdings Corporation (NASDAQ:WSC), formerly known as WillScot Mobile Mini Holdings Corp., offers workspace and portable storage solutions in the US, Canada, and Mexico.

Wall Street analysts believe that investments in climate-controlled storage and Clearspan categories should drive growth into 2025. WillScot Holdings Corporation (NASDAQ:WSC) is confident in the sequential unit on rent growth and positive performance in value-added products and services. The company expects to maintain a medium-term operating range of 20% - 30% for FCF margin. WillScot Holdings Corporation (NASDAQ:WSC) anticipates a stronger sequential pickup in Q4 2024 as compared to the previous year, with expectation for record growth in 2025.

Notably, the larger projects offer a foundational level of demand, and the potential for interest rate cuts is expected to benefit the transactional side of the market. In the recent earnings call, WillScot Holdings Corporation (NASDAQ:WSC) highlighted that seasonal rentals continue to turn into longer-term commitments, leading to an acceleration in retail activity in Q4. The company expects that value-added products and temperature-controlled storage should drive YoY growth in the next year.

The company’s ability to provide flexible, temporary space solutions throughout various industries places it well to capitalize on potential economic recovery and improved construction activity.

As per Wall Street analysts, the shares of WillScot Holdings Corporation (NASDAQ:WSC) have an average price target of $52.20. ClearBridge Investments, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:

“Stock selection in industrials was the leading detractor from relative performance, as the prospect of a higher-for-longer interest rates environment weighed on investors’ outlooks for industrial and nonresidential construction. Also impacted was WillScot Holdings Corporation (NASDAQ:WSC), the North American leader in turnkey modular space and portable storage solutions. The company’s stock price pulled back amid a decline in nonresidential construction starts and a less optimistic outlook for short-cycle industrials. However, WillScot continues to have high cash flow yields and a strong order backlog, which should help the company to weather near-term headwinds.”

Overall WSC ranks 4th among the most undervalued industrial stocks to buy according to analysts. While we acknowledge the potential of WSC as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than WSC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.