UL Solutions: Profitable Growth, Insider Backing, and Undervalued Potential

UL Solutions (NYSE:ULS), a global leader in safety science and compliance services, has emerged as a compelling investment opportunity due to its consistent profit growth, strong insider ownership alignment, and what appears to be undervalued potential based on discounted cash flow (DCF) analysis. With a 5.5% annual EPS growth trajectory, stable EBIT margins, and strategic insider investments totaling $61 million, the company is positioned to capitalize on megatrends like energy transition and sustainability. Let's break down the key drivers and address investor concerns.

Profit Growth: A Solid Foundation

UL Solutions' financial performance has been robust, driven by organic revenue growth and margin expansion. In 2024, diluted EPS rose 24.6% to $1.62, while adjusted diluted EPS increased by 18.1% to $1.70. For 2025, analysts project EPS to grow by 5.5% to $1.53, reflecting mid-single-digit revenue growth and improved operational efficiencies. While the user's prompt references a 7.8% annual EPS growth rate, the company's recent results align with a sustainable trajectory, with 2024's strong performance setting a high bar for future growth.

EBIT Margins: Stability Amid Expansion

The company's EBIT margins have remained stable despite macroeconomic headwinds. In 2024, Adjusted EBITDA margins expanded by 190 basis points to 22.9%, fueled by higher revenue and cost discipline. For 2025, management targets a 24% Adjusted EBITDA margin, achievable through operational leverage and strategic investments in high-margin segments like its Industrial division (which saw a 32.5% margin in Q1 2025). This stability is critical as UL Solutions navigates rising tax expenses and global trade uncertainties.

Insider Ownership: Alignment of Interests

UL Solutions' insiders hold shares valued at $61 million, representing 1.2% of the company's equity. While recent insider transactions, such as the sale of 3 million shares by beneficial owner ULSE Inc. in 2024, may raise eyebrows, the broader picture is one of confidence. Executives like COO Gitte Schjotz and EVP Alberto Uggetti have maintained significant stakes post-sales, suggesting a long-term commitment. This ownership aligns their incentives with shareholders, fostering accountability for value creation.

Undervalued Potential: DCF Analysis

A DCF analysis supports the case for UL Solutions being undervalued. With $287 million in free cash flow (2024) and a projected 2025 free cash flow of $320 million (assuming mid-single-digit revenue growth and margin expansion), the company's cash flows are robust. At a 24% EBITDA margin and a conservative 8% perpetual growth rate, a DCF valuation could exceed the current stock price of $70.56, especially if margins hit the 24% target. Analysts' price targets of $59–$78 further suggest upside potential.

Addressing Dilution Concerns

Investors often worry about equity dilution, but UL Solutions has prioritized debt reduction and disciplined capital allocation. Total debt fell to $657 million by Q1 2025, down from $747 million in 2023, while free cash flow remains strong. The company's focus on share buybacks or dividends—$25 million in dividends were paid in Q4 2024—reduces the risk of equity dilution, favoring existing shareholders.

Analyst Forecasts: A Bullish Outlook

Analysts are cautiously optimistic. The consensus rating of “Moderate Buy” reflects confidence in UL Solutions' ability to sustain profitability. A $69.43 average price target (with Citigroup's $71 and Wells Fargo's $77 upgrades) aligns with the DCF narrative. Key catalysts include execution of energy transition projects, Software & Advisory segment margin improvements (which lagged at 14% in Q1 2025), and global regulatory tailwinds.

Conclusion: A Strategic Buy for Growth Investors

UL Solutions presents a compelling opportunity for investors seeking steady growth in a defensive sector. Its stable EBIT margins, insider-backed governance, and DCF-supported valuation make it a standout play in safety science. While risks like geopolitical tensions and tax headwinds exist, the company's operational discipline and strategic investments position it to outperform. With shares trading at a P/E of 42.25 (vs. a 5-year average of 32), patience is advised—waiting for a dip below $65 could offer an optimal entry point. For long-term investors, UL Solutions is a buy, especially if the $78 price target materializes by year-end .

Investment Recommendation: Buy with a 12-month price target of $72–$75.