We came across a bullish thesis on Willdan Group, Inc. (WLDN) on The 10x Radar’s Substack by Aditya. In this article, we will summarize the bulls’ thesis on WLDN. Willdan Group, Inc. (WLDN)’s share was trading at $36.60 as of Jan 8th. WLDN’s trailing and forward P/E were 22.32 and 15.58 respectively according to Yahoo Finance.
A technician in a hard hat using an industrial machine to construct a power grid segment.
Willdan Group is an often-overlooked engineering and consulting firm that provides essential services to cities, utilities, and businesses. Specializing in energy efficiency, decarbonization, and grid modernization, Willdan helps ensure the reliability of power systems, the affordability of energy, and the advancement of environmental goals. The company operates in a highly fragmented marketplace but stands out by offering end-to-end solutions, integrating services from policy and data analytics to program management and engineering. With 84% of its revenue coming from energy services and the remainder from engineering projects, Willdan has established long-term relationships with significant clients, including the New York Power Authority and Consolidated Edison, across major markets like New York and California.
The company’s primary business segments are focused on decarbonization efforts and energy efficiency, which are in high demand due to electrification trends and national net-zero mandates. As cities and businesses transition to electric vehicles, buildings, and other systems, Willdan is at the center of these efforts, working on projects like New York’s Local Law 97 to decarbonize public buildings. With skyrocketing electricity prices and rising demand for AI-driven data centers, Willdan is also expanding its footprint in the commercial sector, notably in data center optimization. The acquisition of Enica Engineering bolsters its presence in this fast-growing market, with plans for further acquisitions to increase the share of commercial clients in its revenue mix. Willdan’s ability to secure long-term, stable funding, particularly from utility fees and government programs, ensures a steady revenue stream that supports its growth trajectory.
The company’s financials highlight its strength: projected net revenue for 2024 is $290 million, with adjusted EBITDA of $53 million, reflecting solid growth. Willdan’s cash flow generation is robust, with operating cash flow nearly matching adjusted EBITDA, and its balance sheet is solid, with a low leverage ratio of 0.7x EBITDA. Notably, Willdan is aggressively reducing debt through operating cash flow, a rare achievement for a small-cap company. Despite the anticipated tough comparisons in Q4 2024 due to an exceptionally strong Q4 2023, the company’s long-term growth outlook remains intact, driven by strong contracts and favorable market conditions.
Valuation-wise, Willdan is trading at just around 10x 2025E EV/EBITDA, significantly below the average 15x multiple of its peers in the engineering and energy services sectors. This presents a compelling opportunity, with a potential 50% upside if the company trades in line with its peers. The valuation does not even fully account for the growth potential of Integral Analytics, a proprietary software division that has started to gain traction. Integral Analytics offers high-margin grid analytics software to utilities, helping them optimize energy demand and integrate renewable resources. With rapid growth in this segment, Willdan is positioned to benefit from the increasing demand for AI-driven energy solutions, creating a flywheel effect that could significantly accelerate its growth.
Despite its solid fundamentals and high growth potential, Willdan remains underfollowed due to its small size and unglamorous nature. It is a “boring” business, but in the overlooked corners of the market, the best opportunities often lie. Willdan Group is poised to capitalize on major trends in energy decarbonization and electrification, with a valuation that suggests substantial upside potential. For investors willing to look beyond more hyped sectors, Willdan represents a unique opportunity with a strong risk/reward profile, set to benefit from both its core energy services and the growth of its software division.
Willdan Group, Inc. (WLDN) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held WLDN at the end of the third quarter which was 10 in the previous quarter. While we acknowledge the risk and potential of WLDN as an investment, our conviction lies in the belief that some 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 more promising than WLDN 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 was originally published at Insider Monkey.