UL Solutions Stock Breakout Imminent – Is Now the Time to Buy?

Key Points

• UL Solutions provides inspection, verification, testing, auditing and inspection services for a number of end markets, including consumer electronics, computer equipment, smoke detectors, smart devices and even plumbing products.
• The UL Mark can be found on billions of products worldwide, indicated by the letter UL inside a circle.
• UL Solutions is benefitting from major tailwinds in energy transition and sustainability.

UL Solutions Inc. NYSE: ULS is a company in the business services sector that may not sound familiar, but its trademark, the UL Mark inside a circle logo, likely does. The UL Mark can be found on home appliances, furniture, smart devices, plumbing products, smoke detectors, fire extinguishers, and computer equipment.

It’s a widely recognized symbol of trusted safety and performance. Only products that have been certified and meet quality, safety, and security standards can earn the widely recognized UL Mark.

The Business of Safety Science

While UL Solutions is not a government agency, its certification is a trusted brand that companies are willing to pay to earn. UL Solutions performs testing, inspection, certification, training, and consulting services. It covers various end markets in multiple industries, including consumer electronics, construction, technology, energy, automation, and service.

The UL Mark is on billions of products worldwide. More than 80,000 customers utilize its testing services, and its workforce is comprised of over 10,000 scientists and engineers covering over 600 technical accreditations. The company is benefitting from various global tailwinds, including global energy transition and sustainability.

The company went public on April 12, 2024. Secondary shares were sold by the nonprofit organization UL Standards & Engagement, which was the sole stockholder. The company also had a secondary offering of 20 million shares priced at $49 on September 6, 2024, also from UL Standards & Engagement.

UL Solutions Is Profitable and Growing Moderately

In its second earnings report as a public company, UL Solutions reported Q2 2024 EPS of 44 cents, beating consensus estimates by 5 cents. Revenues rose 6% year-over-year (YoY) and 8% on an organic basis to $730 million, beating $718.73 million consensus estimates. The company generated net income of $106 million and adjusted EBITDA of $173 million, up 11.6% YoY. Adjusted net income margin was 12.9%. Adjusted EBITDA margin rose 120 bps to 23.7%.

Operations generated $244 million of net cash and $131 million in free cash flow during the first six months of 2024.

The Industrial segment revenue rose 7.5% YoY to $314 million. Adjusted EBITDA rose to $97 million, up 6.6% YoY. Gains were driven by continued demand related to renewable energy, electrical products, and component certification testing, in addition to increased lab capacity.

The Consumer segment revenue rose 4.2% YoY to $322 million and adjusted EBITDA rose 17.3% YoY to $61 million. Gains were driven by improved retail demand and electromagnetic compatibility testing.

The Software and Advisory segment revenue grew 6.8% YoY to $94 million and adjusted EBITDA rose 25% YoY to $15 million. The gains were driven by increased sustainability advisory and software revenue.

UL Solutions Issues Full Year 2024 Forecasts

The company reiterated mid-single-digit revenue growth for the second half and full year of 2024. Adjusted EBITDA margin will continue to improve. Capital expenditures are expected to be between 7.5% and 8.5% of revenue. The company will continue to make acquisitions and refine its portfolio.

UL Solutions CEO Jennifer Scanlon commented, “We are a global leader in the Testing, Inspection, and Certification business, tracing our origins back 130 years around the advent of electricity. Today, we operate in over 35 industries; we continue to expand our industry-leading capabilities both organically, thanks to outstanding execution from our dedicated safety science professionals, and through targeted acquisitions."

ULS Stock Forms an Ascending Triangle Pattern

An ascending price channel is comprised of an ascending or rising upper trendline resistance and an ascending lower trendline support. A breakout forms when the stock surges through the upper trendline and a breakdown occurs when the stock falls below the lower trendline support. An eminent price break will occur as the channel between the upper and lower trendlines tightens as it approaches the apex.

ULS upper flat-top trendline resistance is at the $54.72 Fib. The ascending lower trendline continues to tighten the trading channel as shares near the apex point. The daily anchored VWAP support is at $47.37. The daily RSI is slipping to the 62-band. Fibonacci (Fib) pullback support levels are at $50.96, $47.81, $45.73, and $42.74

UL Solutions’ average consensus price target is $45.80, and its highest analyst price target is $60.00. Eight analysts have buy ratings and four have Hold ratings.

Actionable Options Strategies: Bullish should pay attention to a potential breakdown back to the consensus price target. Investors can consider using cash-secured puts to buy ULS at the Fib pullback support levels for entry.