We came across a bullish thesis on UL Solutions Inc (ULS) on ValueInvestorsClub by Robot1. In this article we will summarize the bulls’ thesis on ULS. UL Solutions shares were trading at $34.94 when this thesis was published, vs. closing price of $55.15 on Aug 29.
A worker in a factory wearing a safety uniform standing in front of a conveyor belt of products.
UL Solutions (ULS), a recently listed company, is a standout in the testing, inspection, and certification (TIC) industry. ULS’s uniqueness lies in its origins; it was carved out from a nonprofit organization, the Underwriters Electrical Bureau, now known as UL Research Institutes. Despite this unusual beginning, ULS has established itself as a formidable player in the TIC sector, providing independent services and software solutions to customers worldwide. The company is the largest TIC provider in North America, serving over 80,000 customers in more than 110 countries. ULS’s iconic UL Mark, found on billions of products, is a symbol of safety and quality, generating recurring revenue for the company.
ULS’s business model is built on offering high-value, low-cost services that customers rely on for their product development and quality assurance processes. The company is particularly well-positioned to benefit from secular trends such as energy transition, sustainability, and increasing supply chain complexity. These factors, combined with ULS’s scale and strong brand recognition, create a robust foundation for growth.
One of the key attributes of ULS is its pricing power, especially within its industrial segment, which serves markets like energy and automation. This segment, which is growing faster than the consumer segment, has the potential to drive both revenue growth and margin expansion. ULS’s historical revenue growth rate of 5-6% is expected to see an upside due to recent investments in new initiatives that are now nearing completion. These initiatives include the development of new testing labs and the integration of its Software and Advisory (S&A) segment, which should contribute to higher margins as it scales.
The company’s financials are solid, with a strong balance sheet and low leverage, providing flexibility for future growth. ULS has demonstrated its ability to successfully execute acquisitions, having deployed over $1 billion in M&A since 2010. The fragmented nature of the TIC industry presents further opportunities for ULS to continue this strategy.
Investors should consider ULS as a compelling investment due to its strong market position, pricing power, and growth potential. The company’s current valuation, slightly above its peers, offers an attractive risk/reward profile. If ULS meets expectations, there is potential for significant multiple expansion as the market comes to appreciate the company’s unique position as the only U.S.-listed TIC provider. The quality of ULS’s management team, led by CEO Jennifer Scanlon, further enhances the investment case. Scanlon’s track record and alignment with shareholder interests, along with the company’s recurring revenue model and favorable industry dynamics, suggest that ULS is well-positioned for long-term success.
ULS is not on our list of the 31 Most Popular Stocks Among Hedge Funds. While we acknowledge the potential of ULS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ULS 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.
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