This is my first time covering Trimble (NASDAQ:TRMB), which is a technology company that specializes in providing solutions that connect the physical and digital worlds. Its most prominent industry exposures are in agriculture, construction, geospatial, and transportation, where it integrates hardware, software, and services for increased productivity, efficiency, and safety.
In my opinion, TRMB stock is currently moderately undervalued, providing alpha potential based on valuation multiple expansion and forecasted EPS and revenue growth in FY 2025 after only slight EPS growth and a contraction in revenue estimated for FY 2024.
Technological Innovation, Specialized Software, And PTx Trimble
Trimble’s core technologies include positioning, modeling, connectivity, and data analytics, which connect the digital and physical worlds. Its solutions offer real-time connections between field and office operations, optimizing business processes. It also aids in automating workflows, systemizing data, and enhancing collaboration. Trimble also has established state-of-the-art technology labs at Ohio State University to provide hands-on learning opportunities in agriculture and construction technologies, facilitating the next generation of professionals to enter these industries.
Key Software | Description |
Business Information Modeling (‘BIM’) | Trimble provides BIM software for the Mechanical, Electrical, and Plumbing (‘MEP’) sector. This includes 3D modeling, clash detection, and integrated calculations. |
Geospatial Technology | Trimble provides Global Navigation Satellite Systems (‘GNSS’), laser scanning, mobile mapping, and field and office software. |
Construction Management | Trimble’s construction software, such as the B2W platform, integrates estimating, field tracking, scheduling, and fleet maintenance. |
Trimble is growing not only from its strong product and service offerings, but also because of its notable acquisition strategy. Recently, it has entered a joint venture known as PTx Trimble with AGCO Corporation (AGCO). The company acquired an 85% stake in the venture, while Trimble retained a 15% stake. It aims to combine Trimble’s precision agriculture business with AGCO’s JCA Technologies to create a mixed-fleet precision agriculture platform. PTx Trimble is likely to accelerate the pace of innovation in precision agriculture, and the JV will offer technologies around guidance, autonomy, precision spraying, connected farming, data management, and sustainability. This is an area to be very bullish about, in my opinion, because it is a pioneering effort in the future of technoagriculture. The JV positions Trimble and AGCO as leaders in mixed-fleet precision agriculture.
However, Trimble is not the only company operating in similar markets with similar products and services. Hexagon (OTCPK:HXGBY) operates in geospatial, construction, and agriculture with digital reality solutions, and the highly reputable Autodesk (ADSK) provides BIM solutions and design software. Furthermore, Topcon (OTCPK:TOPCF) also competes in construction and geospatial technologies.
Valuation Analysis, Fundamental Growth Estimates, And 1Y Price Target
TRMB looks expensive on a PE ratio basis due to a 33% contraction over the past 12 months in the ratio; however, this is because of the 2.5% growth for FY 2024 estimated, compared to the 12% forecasted for FY 2025 and roughly 8% achieved as a 5Y average. On the other hand, TRMB does look cheap from a PS and PFCF ratio standpoint, as its YoY revenue growth is 6.6% YoY, compared to 4% as a 5Y average.
That being said, revenue estimates for the next two quarters indicate a significant contraction:
Therefore, although the valuation is relatively attractive and potentially moderately undervalued, we are still likely not out of the woods yet in regard to the downward momentum the stock has delivered over the past 5 months:
That being said, I believe after Q3 results sentiment should begin to improve in anticipation of Q4 2024, which should deliver 40% YoY EPS growth based on the consensus.
If TRMB has a P/E non-GAAP ratio of 22 in FY 2025, which would be up and closer to its 5Y average of 24, then the stock is likely to be worth $67.5 at this time next year, as long as the market prices in its fundamental growth for FY 2025 a few months early. This indicates a bull-case price growth of 32.5% in 12 months, making TRMB a Buy based on my analysis.
Q2 Results
In Q2, Trimble delivered a 12% YoY decrease in revenue and a GAAP net income of $1,316.4M, which is significantly higher than $44.6M in Q2 2023. ARR also is up 12% YoY, reaching a record $2.11B. With both revenue and EPS exceeding the midpoint of guidance, this provides strength in the longer-term outlook for FY 2025. However, the YoY decline in total revenue does indicate competitive pressures and demand issues related to macroeconomic weakness at the moment.
Management mentioned in the Q2 earnings call that there is a shift toward higher growth software and recurring revenue, with 75% of revenue now from software services and 60% of overall recurring revenue. Furthermore, management mentioned that Trimble’s technology was leveraged for the design, engineering, and construction of several stadiums and facilities for the Paris 2024 Olympics, and the Trimble Connect platform was used to coordinate across hundreds of users and stakeholders, praised for its file quality and usability. These are strong developments and all the more reason to be bullish on TRMB moving forward, in my opinion.
Innovation, And Tesla’s Optimus Risk
We are currently entering a period of high technological innovation amid trends in AI and automation technology beginning to scale. As a result of these operations, it is likely that new market entrants will emerge that could significantly outcompete Trimble if it does not continue to pioneer and innovate in its respective fields. For example, the synergy between AI and robotics is paving the way for groundbreaking innovation in construction and agriculture. Trimble is well-positioned to continue to evolve to support such operations, as it currently employs machine learning in construction, AI for risk mitigation, and AI-powered design software, among other use cases across various industries. Nonetheless, the threat remains large.
Currently, undervalued downside catalysts include Tesla’s (TSLA) Optimus, which, while currently still in development for mass-scale deployment, has the likelihood of becoming a significant industrial robot used across the globe that could compete with the automation offerings of Trimble. This is a significant medium-term to long-term threat. There are also other players, like Boston Dynamics, who continue to use cutting-edge AI and machine learning capabilities to perform complex tasks autonomously. Based on my research and understanding of the industry, it is not inconceivable that Tesla will become dominant in industrial robots, significantly undercutting a portion of Trimble’s business related to autonomous operations.
Conclusion
Trimble is an interesting company, and one that is now trading at an appealing valuation. Despite this, there is likely some further downward momentum before the stock price begins to lift again. That being said, even if investing at present levels, I think that a ~30% price growth for the stock is possible over the next 12 months. As a result of this analysis, I consider TRMB a Buy despite it not being one of the highest growth investments based on a long-term horizon. It works as a smaller allocation, but I think there are better-valued and higher-growth investments out there for more substantial long-term alpha.
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