Willscot Holdings Corp

This post is not investment advice. Do your own work before taking a position.

WSC is the leading provider of turnkey modular space and temporary storage solutions in North America. The stock is a buy as the market underestimates the revenue growth potential of the company. Presently, the market is pricing in a 3% revenue CAGR to 2027, flat EBIT margins at ~28%, flat capex of $260m and -2.2% perpetual growth in cash flows thereafter. Clearly the market thinks the company is facing serious, permanent challenges. In reality, WSC’s challenges are transient. The depressed utilization rates in modular and storage are caused by high interest rates, immigration enforcement, and tariff fears delaying starts in new construction. While these concerns are valid, they’ll likely resolve in the next 12-18 months allowing WSC to use their scale advantage to drive utilization rates from ~60% in both segments to their historical average of ~65-70%, leaving a company worth something in the range of $44-55 / share, 77-122% above current levels.

I believe the market is being too conservative. WSC has faced a number of headwinds over the past three years, political uncertainty and elevated interest rates chief among them. With 8% of the stock sold short, there are clearly market participants who believe these factors are here to stay. However, I believe these are all transient factors. Furthermore, WSC’s policy in the face of these headwinds has been to hold prices steady, even if it means losing market share. Peers have not been as disciplined. This is reflected in WSC’s underperformance in terms of utilization relative to key peer McGrath (MGRC), whose utilization rate is 78% (2024) and close to their all-time high (80%), while WSC’s is 62% (2024) a far cry from their all-time high of 72%. Put simply, WSC has absorbed most of the industry’s decline in utilization. This leaves WSC poised to take advantage of any increase in demand as they’re the only player with meaningful capacity. If that happens, not only will utilization increase, but WSC can charge higher prices as they’ll be the only option available.

Key questions:

1.     When will utilization rates improve?

While the exact timing is difficult to pinpoint, I believe utilization rates will improve. Firstly, the presidential election caused a slowdown in Q3-Q4 of 2024. That’s clearly over for the next 4 years. Secondly, interest rates have been elevated to combat inflation, which appears to be largely under control, so rates have probably peaked and may even begin to fall. Thirdly, immigration enforcement does create construction cost headwinds, but that too is transitory. There is some concern the trade war may harm WSC, but if it results in reshoring of manufacturing and the need to stockpile certain goods, that’s good for WSC in the long term.

2.     Can pricing at least hold steady?

I believe pricing (Average Monthly Rate – AMR) can at least hold steady. WSC has demonstrated their ability to use VAPS to compensate for declining container-only rates while improvements to the utilization rate should provide upside to pricing.

Catalysts:

·         Quarterly earnings (Q1 ’25 report out on May 1 at 5:30pm EDT)

·         Tariff walk back / resolution

·         Rate cuts

Risks & mitigants:

·         The main risk is playing out in markets right now (tariffs). With the stock down 15% since Trump announced tariffs and nearly 26% YTD these risks are likely in the price.

·         Rates stay high and economic activity remains constrained, keeping utilization stagnant for extended periods. Partially mitigated by undemanding valuation.

·         AMR falls due to further market decline. Partially mitigated by VAPS content increases.

Price-implied expectations:

As discussed on the first page, $24.82 (as at close on 28 April) is undemanding.

Business:

The business is reasonably straightforward. WSC rent shipping containers and modular offices to a variety of customers, like construction companies and retailers. They also provide services such as delivery and installation and value-added products and services (VAPS) such as ramps, lighting, storage racks, fences etc.

WSC’s disclosures:

WSC’s disclosures around their fleet can be generously described as inconsistent. Q1 2024 saw the reorganization of the company into “modular”, “storage” and “VAPS” segments, with only revenue broken out by segment and profitability blended into one number at the gross margin level and beyond. Further complicating matters is that the restatements under the new regime only go back 3 years and that there is precious little data on the different products within each segment (e.g. modular office vs GLO / container storage vs cold storage).

The modular segment contains two main products: Container offices (formerly known as Ground Level Offices or GLOs) and other modular (modular office, classrooms, and clearspan structures). Container offices, when last disclosed (Q4, 2023) comprised ~31k units vs a current modular fleet of 153k units. No separate pricing/utilization/profitability data is available for either product.

The storage segment also contains two main products: storage (which is simply shipping containers) and cold storage (refrigerated shipping containers and trailers). Once again, no separate pricing/utilization/profitability data is available for either product. The storage segment is primarily storage containers whose demand is predicated on construction starts and retail demand. Cold storage is a higher priced business, and WSC are looking to expand in that area. However, cold represents ~1.3% of their storage fleet (2.8k / 211k units) so it’s not a needle-mover.

In summary:

·         Modular does have different products (GLO vs core modular) but they are not separately disclosed in pricing/utilization/profitability terms.

·         The same is true of storage with cold vs non-cold.

Competition:

The main players are WSC and McGrath (MGRC). United Rentals (URI) are expanding into modular, but they’re still tiny (~20k units) vs WSC’s 360k and MGRCs 120k. Many of the peers are private or do not disclose sufficient information to enable a peer comparison. Small local providers do exist but they specialize in one city or area and tend to offer very basic containers without VAPS at about half the price point.

Looking at WSC’s historical returns on tangible capital (EBIT/(NWC + PPE)), they have generated returns a couple of percentage points ahead of key peer McGrath (MGRC). Earning a greater return on capital to peers indicates there is a competitive advantage.

In WSC’s case this advantage is scale. WSC are the largest provider with a fleet of 360k units, 3x the size of MGRC. This gives WSC some cost advantages and means customers with large projects or immediate needs will find few other providers able to meet their needs. Further evidence of this is the FTC blocking the merger of MGRC and WSC late last year.

Pricing & utilization:

WSC’s pricing has remained stable, while utilization has fallen substantially (refer to appendix 1 for details). WSC have been reluctant to drop prices to maintain market share. They’ve also had some issues with customer service – but these can be interpreted as integration issues, and management are aware of them.

In the modular segment, WSC have been reluctant to drop their core price (i.e. ex-VAPS) to retain share. While not completely off the table, lowering core price seems to be reserved for cases where they can more than make up for the drop in core price with VAPS. Furthermore, interviews with experts indicate that WSC management have made it difficult for the sales team to close a lease without a VAPS component - to the extent they will let a contract go if they can’t get VAPS included.

There are also indications that they’ve delivered less than ideal customer service. Partly because of a lack of integration of the various mergers over the years and partly because they’ve been aggressive with contract terms. The first, the lack of integration post merger, is a classic of the genre and needs no further explanation. Management is aware of what they need to do, and it will resolve with time.

The second, contract terms, is more interesting as it appears WSC are squeezing their customers for every cent. For example, if a customer returns a container and hasn’t paid for a damage waiver, it’s nearly certain they’ll get hit with a $500 repair bill. There’s also a clause that requires customers to give 30 days’ notice of intention to return a container, even if they’re returning it at the end of a contract. Failure to provide 30 days’ notice will result in $1,000 expedited pickup bills per unit. The theme running through all four expert network calls was one of WSC squeezing customers hard.

That WSC have been doing this and maintaining pricing demonstrates WSC’s competitive advantage. Oftentimes, they’re the only game in town. Indeed, part of the reason the FTC blocked the merger with McGrath was that when they interviewed customers they found they didn’t want even less choice in their modular/storage offering because it was already quite limited. Put another way: WSC have been behaving quite poorly towards their customers because the customers don’t have that many options.

Shipping is a slightly different story. During the initial supply chain disruption in 2020, Chinese shipping companies flooded the market with cheap containers because there weren’t sufficient shipping containers where they needed them. This resulted in a container glut. In 2019, a 40-foot container cost $2.8k delivered. During COVID and up until 2023 that exploded to $6-7k before falling back to $2.8k in Q4 2024. From a construction company’s point of view, if you’ve got a 36-month construction project, WSC can lease you a container for ~$200 / month, or you can buy one outright for $2.8k. The math on leasing just doesn’t add up.

It’s also worth noting that 2022/2023 was an exceptional period for the storage business, with industry utilization peaking at ~90% in early 2023. It sits at ~50% today. The industry-wide nature of the storage utilization decline versus the self-selected nature of the modular decline are captured in the following chart:

With all of the above said, even WSC’s most pessimistic detractors think that WSC should be able to hold pricing and utilization steady for the next two years. Furthermore, any uptick in industry demand would be highly beneficial to them, particularly with utilization levels so low and peers higher.

Condition of modular fleet:

20% of WSC’s modular fleet is presently unleasable as WSC has opted to lease out the newer parts of their acquired fleet. While not a substantial problem, it would require ~$15-20k per modular unit to refurbish them to a leasable (read: near-new) condition. The cost of a new modular unit was ~$50-60k in Q4 2024 so this is a worthwhile exercise. A full refurb of the entire fleet can be achieved internally within 12-24 months. This functionality is reflected in my modelling, but not used as none of my scenarios push utilization to such a high level that it would be required.

VAPS:

WSC is the clear leader in VAPS with 25% VAPS content compared to MGRC’s 10% (at the time of the proposed merger in Q4 2024). While this advantage isn’t all that durable, it’s still helpful and complements their true advantage: scale. While competitors are catching up, WSC is a long way ahead in VAPS. They will need to keep innovating to maintain their advantage and recent acquisitions including the barriers business indicate they are doing just that.

VAPS has proven to be an exceptional tool for buffering declines in market prices and the company has big plans for the category. Management believes they can hit $668m in VAPS revenue (vs $355m today).

Source: Company filings (investor day 2025)

VAPS is set in concert with the unit rate. For example, a discount on the unit rate may be offered (e.g. $1,000 AMR discounted to $900 AMR), so long as $150 of VAPS is included. In this way, WSC might “lose” on the unit AMR, but gain in overall revenue. VAPS is extremely convenient for the customer and WSC are the leader in terms of breadth of offering.

Management:

Overall they seem to have relevant experience and have so far managed the company reasonably well (revenue growth, multiple acquisitions, margins expanding).

CEO Bradley Soultz – has been at the helm of WSC since 2017. Prior to that he was CEO of Williams Scotsman International Inc. – the predecessor to Willscot that was spun out of its predecessor company and listed on the Nasdaq. Prior to that he was at Novelis (Aluminium rolling & recycling business) and earlier at Cummins, Inc. (engines and parts).

COO & President Tim Boswell – Seems to be part of a package deal with Bradley Soultz – they both stepped up when Williams Scotsman spun out in 2017. Prior to his corporate roles, he spent time in private equity and at various Wall Street firms.

CFO Matt Jacobsen – Former SVP of finance at Willscott. Has been with Williams Scotsman since 2010. Prior experience as an accountant at Deloitte.

Valuation and scenarios:

Base case – 70% chance, $48.50 price target (+88.5%):

·         Modular: modest recovery, VAPS shines

o    Inflation-level growth (3%) in unit-only AMR

o    Recovery in construction activity returns modular utilization to 65% over three years (from 61.9% in 2024).

o    VAPS penetration continues to expand from 25%, achieving 30% by 2028 (taking total VAPS revenue to $574m, a little shy of management’s ~$668m VAPS opportunity)

·         Storage:

o    Inflation-level growth (3%) in unit-only AMR

o    Utilization recovers to 75% (mid-cycle estimate) by 2027 as abundance of containers works its way through the system

o    VAPS holds steady at 11.6% penetration, as I believe this market is approaching saturation

·         Gross margins: remain constant as 2022-2024 saw container-only AMRs increase by 33%, while leasing gross margins only increased from 74% to 77%. The story is the same across leasing, VAPS and delivery and install.

Bear case - 20% chance, $10.50 price target (-59%):

·         Modular: No utilization recovery, lose pricing.

o    WSC discount unit-only AMR in response to softening end markets for 2 years (10% p.a.), inflation thereafter.

o    VAPS penetration stagnates and VAPS gross margin compresses 10% to 73% over 2 years as competitors improve their VAPS offering and pricing becomes more competitive.

·         Storage: No utilization recovery, lose pricing.

o    Rather than reshore manufacturing, tariffs kick off a prolonged economic stagnation. With utilization dropping to an all-time low of 50% and AMRs contracting 10% p.a. for years as the competing firms try to earn any kind of return in a market flooded with cheap containers.

o    VAPS penetration is steady at 2024 levels.

Bull case – 10% chance, $80.70 price target (+214%)

·         Modular: construction boom drives robust demand, VAPS shines.

o    Tariffs accelerate reshoring and kick off a construction boom resulting in substantially elevated demand.

o    As the only player with substantial units available to meet this demand, WSC increases container only prices 10% p.a. for 3 years, inflation thereafter.

o    VAPS content increases to 32.5% over two years as demand for workers forces construction companies to offer better on-site facilities.

o    Utilization reaches an all-time high of 75% in 2028 after dropping to 60% in 2025, as indicated by management.

·         Storage:

o    Construction boom pushes utilization to 80%, not quite an all-time high (86.8%), but still strong.

o    VAPS penetration remains constant.

Summary:

Appendix 1: Historical KPIs

Appendix 2: Historical & forecast P&L

Appendix 3: Valuation (base case)