CAT - Trimble: Growth At A Very Reasonable Price

2024-02-05 03:25:49 ET

Summary

• Trimble stock appears to have bottomed after a 30-month downtrend, yet the company should benefit from a continuing solid macroeconomic environment.
• Trimble is a hardware/software provider in various sectors, including surveying, construction, agriculture, and mapping. ARR is rising, and margins are expanding.
• Trimble is scheduled to report Q4 results on February 12th. I will review what to expect and TRMB's prospects going forward.
• The midpoint of TRMB's FY23 guidance calls for non-GAAP EPS of $2.62, which equates to a TTM P/E = 20x. That being the case, investors are getting growing ARR and margin for a very reasonable price.
• Last week, Trimble announced an $800 million share buyback plan, which equates to ~6% of the company's market cap.

Trimble ( TRMB ) stock appears to have bottomed after a 30-month downtrend that has left it 44% below its peak in September of 2021 (see graphic below). However, the company should continue to benefit from a relatively solid macroeconomic environment. In my opinion, Trimble's Q3 report in November was much better than generally regarded and the drop in the stock price was quickly recovered. Meantime, shares are trading at a TTM P/E=39x and might appear expensive were it not for the forward P/E estimate of 20x . Indeed, last month BMO Capital Markets named Trimble one of 25 companies on the lower end of the technology sector's market cap rankings that offered "growth at a reasonable price" ("GARP"). Trimble is due to report Q4 earnings on February 12th, and investors might want to establish a position prior to the announcement. That's because TRMB is increasingly pivoting to a software-based ARR business model. Let's take a look....

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