Investment Thesis

Valmont Industries Inc. (NYSE:VMI) is a defensive industrial stock with a shareholder friendly reputation currently trading at a discount after recent growth slowdown scares. The stock has already returned more than 200% in price appreciation in the last five years and is currently up by 7% on a YTD basis, in sharp contrast with the broader market.

The stock is an attractive opportunity for the long-term, with signs of continued growth and business decisions supporting both the business growth and investors incentives.

Business Overview

Valmont Industries produces and sells a variety of industrial products with a focus on metals in the United States (70% of the company's revenue), but also in Australia, Brazil, Denmark, and other countries. It operates through two segments: Infrastructure and Agriculture. Infrastructure is the growth engine of the company, as we will see later in this analysis. Agriculture on the other hand has been a laggard due to weakness in North America and Brazil, in particular due to climate disruptions (drought). The company manufactures and distributes engineered metal, steel, wood, aluminum, poles, towers, concrete, energy equipment, etc. Its main customers are governmental entities, municipalities, large farms but also utility companies, communication service businesses and other manufacturers. The company has been led by President and CEO Avner Applbaum since July 2023.

Valmont Industries is a solid defensive stock with some cyclical upswings. While the metals industry is rather cyclical, the company's diversification into other products and countries support its multi-year growth. Additionally, the customer mix with stable government and municipal customers, large farms and large manufacturers support revenue and earnings with limited downside volatility thanks to long-term supply contracts.

As mentioned, this company is particularly shareholder friendly. While the dividend yield is low at only 0.76%, the company favors share buybacks (which is better for US investors from a tax perspective) giving the stock a shareholder ratio of 3.11%. This is also a wise strategy as the company is not handcuffed to high dividend payments and can adjust the share buybacks depending on market and stock price conditions. Last year the company returned $118.4 million to shareholders through share repurchases and dividends.

Source: Valmont Industries (2024)

As described in the 4Q24 investor presentation, the company plans on continuing the shareholder friendly capital allocation with 50% of the cash allocated to growing the business and 50% of the cash returning to shareholders in the form of share repurchases (of which a new $700 mn authorization announced in February 2025) and dividend payments.

Hard Figures: Financials, Balance Sheet and Valuation

Valmont Industries faced some headwinds with significant impacts on the Agriculture segment of its business due to weakness in North America and Brazil. Soybeans productions have been hit by drought and consequently demand for agricultural parts has declined.

Source: Valmont Industries (2024)

Net sales decreased 2.4% to $4.08 bn in 2024, compared to $4.17 bn the year prior. While Infrastructure sales of $3.0 billion remained stable, Agriculture sales declined 8.3%. Despite the decline, the EPS continued to grow by 14.8% YoY showing management's efficiency in tackling headwinds. With a gross margin at 30.5%, an operating margin at 12.9% and a ROE at 24%, the business is indeed well managed.With roughly $3 bn in sales from Infrastructure and $1.1 bn from Agriculture, net income stood positive at $348.3 mn for FY 2024, showcasing the ability to generate cash even as sales decline. The balance sheet is pristine with a debt/equity of 0.56, an interest coverage of 9x and total current assets of $1.7 bn exceeding total current liabilities of $0.8 bn, giving it a current ratio above 2.The recent sales decline and broader market selloff on tariff fears caused the stock to be trading at a discount. Indeed, Valmont Industries is trading at a P/E of around 18x (both on TTM and FWD bases), while both the 5-year average and the sector median are closer to 20x (10% discount).

Outlook

While tariffs caused significant volatility in the markets, they could potentially favor Valmont Industries: the US manufacturer of metal and other industrial products could be protected from international competition as a result of the tariffs. With 70% of the revenue generated in the US, tariffs could support Valmont's business expansion in the US.

Source: Valmont Industries (2024)

Another good news is the strength demonstrated in the last quarter of 2024, showing potential signs of recovery and growth acceleration. While sales declined on the full year, they increased by 2.1% in the last quarter compared with a year ago. Operating income and EPS both sharply increased by 19.7% and 20.8%, possibly opening the way to a new growth cycle. The Infrastructure segment was the most impressive one with its operating income increasing by 23.6%, showing it's the real growth engine of the company. Despite weakness over the year, the Agriculture segment's net sales also rose 2.3%, supporting investor optimism that the company is turning around after a relatively bad year in terms of revenue growth.

Source: Valmont Industries (2024)

According to the CEO Avner Applbaum, demand for Infrastructure products and solutions will drive continued sales growth in 2025. Agriculture could however continue facing some market softness in North America according to Avner Applbaum. Infrastructure revenue should increased between 1% to 5.5%, while Agriculture revenue will decline by -3.5% to -9.5%. The good news is that Infrastructure is responsible for 75% of the company's revenue and most of its net income. Still, investors have reasons to be optimistic: the cash generated allows the company to increase its capital expenditure to $150 mn (up from $95 mn), fueling a new cycle of growth. Indeed, given the company's high returns on equity discussed early, higher capex could translate into an acceleration in growth and upside surprises.

Risk Factors to the Investment Case

As for every investment, there are risks to be considered. The revenue growth slowdown, and in particular the decline of the Agriculture segment of the business, if prolonged, could potentially cause investors to start worrying and lose patience. There is a mitigant to this risk however: last quarter showed encouraging signs that the company may have return to a path of growth.

Another risk is the recent US recession probability increase that can significantly impact the company: Valmont's customers could delay new orders until the macroeconomic picture becomes clearer. However, the Infrastructure segment, which is the company's main source of revenue and net income, is supported by long-term infrastructure projects and large players including governmental entities and municipalities, and therefore the financial downside risk should be limited.

Bottom Line

The stock is an attractive long-term opportunity, having already generated more than 200% returns in the last five years, boasting high margins and returns on equity, and pursuing shareholder friendly policies. The stock could be an interesting play to hedge an investor portfolio from tariff risks, while enjoying a 3.11% shareholder yield and betting on the continuation of the last quarter's solid financial numbers. The recently announced $700 mn share buyback authorization further supports the case for an investment in this stock within a long-term oriented investment portfolio.

This article first appeared on GuruFocus.