A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company known as a dominant infrastructure and “agri-tech” innovator.
Pat likes the company’s leadership in an AI--powered agriculture transformation driving steady revenue and earnings expansions. He also likes the multiple tailwinds and high-growth markets available. However, Pat cautions that the company’s fortunes are dependent on commodity prices and this may contribute to a volatile stock performance.
Valmont Industries Inc. (Symbol VMI on New York; www.valmont.com) was founded in 1946 and is headquartered in Omaha, Nebraska.
The company operates in two main segments:
Infrastructure (72% of sales) offers products to serve the infrastructure markets of utility, solar, lighting, transportation, and telecommunications, along with coatings services to preserve metal products.
Agriculture (28% of sales) is a leader in mechanized irrigation equipment for agriculture, aiming to enhance food production while conserving natural water resources. The company also produces a wide variety of tubing for commercial and industrial applications.
In May 2021, Valmont acquired Prospera Technologies, a privately owned artificial intelligence (AI) company based in Israel. Valmont paid $300 million in cash.
Prospera is a developer of machine technologies that continuously monitor and analyze plant development, health and stress. The company uses artificial intelligence-based sensors and in-field cameras to help farmers monitor crops. It then analyzes the data to identify pests and diseases, monitor agro-technical activities and record crop yields. All this is aimed at helping farmers find new ways to achieve higher crop yields with less land, water, chemicals, fertilizers, fuel and time.
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In August 2023, the company completed the acquisition of HR Products, an Australian wholesale supplier of irrigation parts. The acquisition lets Valmont expand its presence in Australia’s large agriculture industry. The purchase price has not been disclosed.
HR Products was founded in Perth, Australia, in 1979. It sells various irrigation products to Australian farmers and other businesses. The firm has six warehouses across the country and nearly 100 employees.
Inner Circle: Valmont Industries Outlook Remains Sound Despite a Revenue Dip
Over the last few years, Valmont’s revenue has increased steadily, rising 57.9%, from $2.76 billion in 2018 to a record $4.35 billion in 2022. Earnings were up 74.9%, from $170.4 million, or $7.59 a share, in 2018 to $298.1 million, or $13.82 a share, in 2022.
In the three months ended September 28, 2024, Valmont’s revenue fell 2.9% to $1.02 billion from $1.05 billion a year earlier. Strong growth in Transmission, Distribution, and Substation (Utility) and Telecommunications was offset by lower sales in Solar and international Agriculture, specifically Brazil.
Excluding one-time items, Valmont earned $87.0 million, down 4.4% from $83.1 million a year earlier. Earnings per share fell slightly, to $4.91 from $4.21 a year earlier on fewer shares outstanding.
With the April 2023 payment, the company last raised its quarterly dividend by 9.1%, to $0.60 from $0.55. The shares now yield 0.7%. Meanwhile, the stock trades at a reasonable 19.0 times its forecast 2025 earnings per share of $17.93.
Valmont’s outlook is sound. The company continues to invest in growth areas like utilities, irrigation, and 5G. Going forward, Brazil is a key expanding market for Valmont’s agricultural business—and the government there continues to significantly increase funding for irrigation projects despite recent softness in grain prices.
Recommendation in Pat’s Inner Circle: Valmont Industries Inc. is okay to hold.
