The explosive rise of artificial intelligence (AI) and cloud computing has ignited an unparalleled demand for data centers over the past year. While these facilities were already gaining traction before the AI revolution, largely fueled by the booming bitcoin mining industry, the tech industry's swift pivot to AI has accelerated the construction and usage of data centers to new heights.
With demand for data centers showing no signs of slowing, projections indicate that the global data center market is poised to hit a whopping $416.1 billion by 2024 and climb to $624.1 billion by 2029, demonstrating a steady compound annual growth rate (CAGR) of 8.5% spanning 2024 to 2029.
As businesses scramble to store, process, and harness vast troves of data, the call for reliable, high-speed, and scalable data center solutions has never been more urgent. For investors looking to gain exposure, Russell 2000 Index (RUT) component Belden Inc. (BDC) emerges as a standout investment opportunity that’s strategically positioned to capitalize on the rising demand for reliable, high-speed data centers.
About Belden Stock
Founded in 1902, Saint Louis-based Belden Inc. (BDC) designs and markets high-performance signal transmission solutions for mission-critical applications across the globe. Belden provides an extensive array of products, including copper and fiber connectivity solutions, as well as power and cooling systems for data centers. It also delivers comprehensive network solutions for industries such as 5G, building automation, and beyond.
Serving diverse sectors like commercial real estate, healthcare, education, and mass transit, Belden's innovative infrastructure and data center solutions power the digital and automated future, ensuring seamless connectivity and secure, high-speed operations worldwide. Valued at a market cap of around $4.8 billion, shares of this cable vendor are up a notable 50% in 2024, easily outshining the broader S&P 500 Index’s ($SPX) 20.3% return on a YTD basis.
While Belden remains laser-focused on growth, it hasn't forgotten to reward its shareholders. On Aug. 22, the company announced a quarterly dividend of $0.05 per share, set to be distributed to its shareholders on Oct. 8. This brings its annualized dividend to $0.20 per share, translating to a yield of 0.17%.
And on Sept. 12, Belden announced a $300 million share repurchase authorization, boosting its total to an impressive $415 million when combined with the previous $115 million plan. CFO Jeremy Parks highlighted that the company's successful Solutions transformation and disciplined operations have led to consistent revenue growth, improved margins, and strong free cash flow.
Belden’s Q2 Earnings Beat Estimates
Shares of Belden gained more than 8% on Aug. 1 after the company released its Q2 earnings results, which crushed Wall Street’s projections. Revenue of $604.3 million dropped by 13% year over year, driven primarily by lower market demand, but still managed to exceed forecasts of $574.2 million. The company’s adjusted earnings of $1.51 per share declined almost 21% year-over-year, but still blew past forecasts by an impressive 11.9% margin.
Commenting on the Q2 performance, CEO Ashish Chand said, “In this dynamic environment where customers continue to work through inventory, our team executed well, delivering moderate sequential growth in orders for the third consecutive quarter.” The company also closed on its acquisition of Precision Optical Technologies during the quarter, which significantly enhanced Belden's fiber portfolio.
For Q3, management anticipates revenue to range between $635 million and $650 million, while adjusted EPS for the quarter is expected to land between $1.55 and $1.65. Longer term, Belden is forecasting annual EPS growth in the 10-12% range through 2028, along with mid-single digit revenue growth.
What Do Analysts Expect for Belden Stock?
Analysts tracking Belden project the company’s profit to drop 11.6% annually in fiscal 2024 to $6.04 per share before rising by 28.6% year over year to $7.77 per share in fiscal 2025.
William Stein, a semiconductor analyst at Truist Securities, recently reiterated a “Buy” rating on BDC, even as he issued a downgrade of the broader group on valuation concerns. Given the stock’s prospects, Stein thinks Belden - along with AI chip giant Nvidia (NVDA) - still has enough upside potential to retain the firm's top rating.
Overall, Wall Street is highly optimistic about BDC stock, with a unanimous “Strong Buy” rating from all the five analysts in coverage.
While the stock is trading at a premium to its average price target of $114.60, the Street-high target price of $124 - courtesy of Goldman Sachs - implies expected upside of 7% to current levels.
From a valuation perspective, BDC stock is priced at 19.39 times forward earnings and 1.96 times sales, both of which represent a healthy discount to the respective tech sector medians of 24.48x and 2.91x. This suggests that Belden stock is reasonably valued at current levels.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
