Trimble Inc. (TRMB): A Software Powerhouse Trading at a Steal

The stock market is a fickle beast, often punishing companies for short-term hiccups while ignoring long-term value. Trimble Inc. (NASDAQ:TRMB) is a prime example of this dynamic. Despite record recurring revenue growth, margin expansion, and a relentless share buyback program, the stock trades at a steep discount to its peers and historical norms. If you're looking for a company primed to capitalize on the software revolution in industries like construction and agriculture, now is the time to buy.

Let's break down why this is a buy at $71.70—and why the $108 price target on the table today is a conservative estimate.

The Recurring Revenue Machine: Why TRMB's Growth is Real
Trimble's shift from hardware to software-driven recurring revenue is the single biggest catalyst here. In Q1 2025, its Annualized Recurring Revenue (ARR) hit $2.18 billion, up 7% year-over-year and 15% organically. This is the lifeblood of the company: predictable, sticky revenue that insulates it from quarterly volatility.

Take its two crown jewels:
- AECO (Architecture, Engineering, Construction, Operations): ARR jumped 19% organically to $1.29 billion. This segment's operating margin is 27.3%, proving software can juice profits.
- Field Systems: ARR rose 25% organically to $358 million, with margins at a jaw-dropping 29.7%. Think precision agriculture, where farmers use Trimble's tools to optimize yields—software that pays dividends for years.

Even its struggling Transportation & Logistics (T&L) segment saw ARR grow 7% organically, a sign that the core business is still expanding.

Margin Expansion: The Profitability Play
Trimble isn't just growing revenue—it's getting more profitable. Non-GAAP operating margins hit 23.6% in Q1, up from 19% in 2022. This is no fluke: its software-heavy model requires fewer physical products, reducing costs. The AECO and Field Systems segments are cash cows, with margins near 30%.

The company's adjusted EBITDA margin of 25.2% in Q1 is another sign of strength. Compare this to its peers: Keysight Technologies (KEYS) has a margin of ~20%, while Trimble's software focus gives it a leg up.

Buybacks: A $627M Vote of Confidence
Trimble's board isn't waiting for Wall Street to catch on. In Q1 alone, it spent $627 million buying back shares, slashing its leverage ratio to below 1.3x. This isn't a company clinging to cash—it's aggressively returning value to shareholders.

At the current valuation, this is a no-brainer. With $2.2 billion in ARR and free cash flow of $149 million in Q1 (despite macro headwinds), Trimble has the financial muscle to keep repurchasing shares.

Valuation: A 49% Upside Waiting to Be Unlocked
Here's where the market is wrong. Trimble's EV/EBITDA of 26.7x is lower than its 5-year average of 24.2x? No—wait, that's a typo. Actually, the EV/EBITDA is 26.7x, higher than its historical norms, but still a steal compared to peers. Keyence (KEY) trades at 22.1x, and Hangzhou Hikvision (HIK) at 16.5x. Trimble's P/E of 11.3x is laughably cheap versus its 5-year average of 31.4x and the industry median of 22.1x.

The fair value estimate? Analysts see $108.20—a 49.6% upside from today's price. Even if you're skeptical, the low P/S ratio of 4.8x (versus its 5-year average of 4.1x) suggests the market is undervaluing its software assets.

The Near-Term Hurdles (And Why They're Overblown)
Bears will point to two issues:
1. T&L Segment Struggles: Public-sector construction spending is soft, and enterprise sales cycles are slowing. But this is a U.S.-centric issue, and Trimble's global reach (especially in agriculture and emerging markets) balances that out.
2. Tariffs and Geopolitics: Non-USMCA compliant imports cost $10 million per quarter. But Trimble is offsetting this with price hikes and supply chain reconfigurations—no existential threat here.

The bigger risk? Internal control weaknesses flagged by auditors. Management says these are being addressed, and given their execution on the software transition, I'm inclined to trust them.

Investment Thesis: Buy Now, Collect Later
Trimble's software-driven growth, margin resilience, and aggressive buybacks make it a rare blend of value and momentum. The near-term headwinds are priced in—so why not buy while the crowd looks the other way?

Action Items:
- Buy TRMB for a 12-18 month horizon.
- Set a target: $108 (the midpoint of analyst estimates).
- Watch for catalysts: ARR growth in Q3, new AI partnerships, or a rebound in T&L sales.

The market's missing Trimble's transition to a software giant. Don't let them miss you.