Ituran: A 20% Earnings Compounder Trading At A Mid-Teens Multiple

Ituran added 40,000 subscribers in the quarter and had a 19% increase in revenue, with the quarterly revenue reaching $100 million for the first time in the company’s history. The stock price fell nonetheless. It is now 24% off its 52-week high and there’s no reason for this in the quarter.

I do not believe that the business has changed. The market seemed to tire of a tiny, lightly traded Israeli telematics stock when the figures under the hood failed to get worse, but the growth did not seem to be as spectacular as it once was. The real growth in this business was subscription revenue, which boomed. Net cash sits at $108M with virtually no debt. None of that shows up in a stock priced like a company that’s done growing.

I’ll say it’s not a call that a telematics company with 2.67 million subscribers is about to reprice to a growth multiple. It’s a more limited claim. A company compounding earnings around 20% this year, strongly cash-generative and self-funded, carrying a portfolio of options valued at essentially nothing, should not trade at 14.8 times forward earnings.

A Mid-Teens Compounder Priced Like It Has Peaked

Ituran is a provider of vehicle location, stolen-vehicle recovery, and fleet telematics services, primarily as a monthly subscription, in Israel, Brazil, and a host of smaller markets. Subscription fees were 73% of revenue last quarter. In the first quarter call, the geographic distribution was Israel 57%, Brazil 22% and the rest of the world 21%.

But why the drawdown? The business printed double-digit growth on every line, and it’s the first time in its history that the company has reached the $100 million level of quarterly revenues, and yet the shares are trading at the mid teens earnings multiple and are a quarter below their 52-week high. Nothing in the quarter explains that gap.

I think the spread is structural – not a fundamentals issue. This name is covered by just one, maybe two, sell side analysts and the daily volume liquidity is scarce and I guess has the same discount for being a small profitable Israeli company that doesn’t typically show up on the screens of most us funds. According to Seeking Alpha’s Quant system, it is rated Hold on a D+ Growth grade, while the two Wall Street analysts who have the stock covered carry a Strong Buy rating and a mean $73.50 target.

The Quarter The Market Shrugged At Was The Strongest In Company History

Revenue came in at $102.67 million, a beat of $7.34 million versus a consensus estimate, according to the Q1 results. Meanwhile, the figure for earnings per share under GAAP was $0.85 per share, a beat of $0.04. The stock price increased by around two percent on the news, and I believe the reaction to the news of a record-breaking quarter and a double-digit beat is relatively modest. I think it has something to do with the fact that the market has largely written off the growth prospects of the company.

Subscription revenue increased 21% to $75.4 million, compared with the headline increase of 19% and that is the real story here, in my view. It’s not this product line that’s driving this business anymore, it’s the recurring base. Ituran increased net subscribers by 40,000 to 2,670,000, in line with its management guidance for net adds of 160,000-180,000 for the year. Product revenue was up, too, 12 percent to $27.3 million, but I consider it the smaller, lumpier passenger who’s accompanying the subscription machine.

My second reason is the balance sheet, which is not so much considered in the multiple that I am looking at, but it is an important factor for me. As said in the Q1 conference call, Ituran has about $108 million of cash and marketable securities, which is practically debt-free. In my opinion, this is approximately 10% of the company’s market cap, Back that out, and I’m effectively paying about 13x forward earnings for the core business., so part of what I’m paying for is effectively sitting there as cash on the balance sheet. This is a good downside protection, in my opinion, I see that as genuine downside protection, not just a footnote, and the Altman Z-score of 5.64 supports that balance-sheet strength from another angle.

I want to make sure that the unpleasant reality is out in the open, rather than having some readers be surprised by it later, so I’m stating it up front. Currency was certainly one factor for the strength that we saw during the qua‍rter. Manageme͏nt was qu‎ite candid, you know, that this was the first year in a long time that foreign exchange actually came in positive, instead of being negative.

This was worth roughly a million dollars at the EBIT line, and t⁠hey did tell the market not to bank on that happening again. I actually believe them on that point. What makes me think this is not truly a problem area is that the Q2 revenue estimate, which is about $99.85 million, is below what Ituran just reported for their own numbers. I read that as conservatism already priced in, not a crack in demand.

Management Is Telling You Where The Next Leg Comes From

I treat management commentary as a claim to be tested, not as evidence on its own. Two lines from the first-quarter call matter for the thesis.

On the currency question, Co-CEO Eyal Sheratzky was blunt about the FX benefit that flattered the quarter:

This is something that we are not counting on.

And what should matter is what it does to the growth grade? Because the D+ that the Quant Hold is tied to is anchored to past YoY numbers that got a one-time boost from an FX tailwind. Strip that tailwind, as management already has, and it is actual underlying, subscribers-led growth that you are buying, not reported growth. The forward numbers concur: SA consensus expects earnings of $3.50 this year and $4.00 next, roughly 20% and 14% growth, with no FX help assumed.

On where the business goes when Israel matures, Sheratzky was equally direct about the moat he is monetizing:

we have something like 90% market share.

The near-saturation is part of the reason the company is pursuing option value elsewhere, including an expanded Stellantis partnership through Connect Fiat in South America, a standalone car-rental program in the United States called IturanMob, a large-scale data sharing initiative with an arm of Israel’s Ministry of Transportation and a carbon-credit venture. None of these is in my numbers and management called them early, so I’m running them as free optionality on a business that already funds itself.

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Valuation: The Whole Discount Is About Three Turns Of Earnings

I prefer to value Ituran on forward earnings instead of a discounted cash flow, since the thesis is a re-rating argument for a consistent cash flow-generating earner, and a DCF in this situation is just a way of washing my multiple through a discount rate. It’s not a question of what the cash flows are. It’s what the market thinks they’re worth.

Start with what the market is actually paying. That’s an equity value of $1.03 billion by selling around 19.9 million diluted shares at $51.81. I think it’s more than just cash that gets deducted from market cap to get to enterprise value, though; I subtract $108 million of net cash and then add back $4.3 million of lease-related debt and $6.3 million of non-controlling interest, which market cap does not reflect. I think the fuller version is more important, rather than the simplified version here, because that puts enterprise value around $933 million.

From there the multiple falls out cleanly. I read that as pricing it as a mature, low-growth name, as the stock trades at 14.8 times forward earnings vs. $3.50 a share on average for FY2026. It has its own trailing multiple of 17.1 times and it spent much of this year above that level before the drawdown, so whatever’s driving the discount, it isn’t something the business itself did.

My fair multiple is 17 times, I will defend this number. A business growing earnings near 20% this year with a 30% ROE and net cash on the books just doesn’t seem like it should be paying a below-market multiple. I’m using 17x rather than the 20-plus multiple a comparable US compounder would command, because the Israel discount, the thin coverage, and the FX exposure are real and enduring. Applied to $3.50, that is a base case of $59.50.

Source: author’s estimate; EPS is Seeking Alpha FY2026 consensus.

That compares with a fair value range of $56 to $63, implying an 8 to 22 percent premium to the current price before a forward dividend yield of 3.86%. An EV/EBITDA cross-check implies roughly $108 million at a 10 times multiple, giving an EV of about $1.08 billion in enterprise value, or about 59 dollars per share after applying the same cash and debt/netting calculations.

I disagree with the Quant system at Hold, but the case is based on the FX-inflated growth grade I already discounted. The Street is quite different, however, with the $73.50 mean target, suggesting about 21 times earnings. I read that as assuming that the discount is fully closed, which I don’t underwrite, so I sit deliberately below it. I would rather say that being below the sell-side target narrows my edge.

That type of mix supports a Buy, not a Strong Buy, and the mid-teens upside to my base is exactly why.

What Would Break My This

The company’s revenue is generated primarily in Brazil (43% of total revenue) and in other countries. The fluctuations of the exchange rates of the Brazilian real and the Israeli shekel could impact the financial results reported, even if the business performance remains unchanged. The favorable exchange rate boosted earnings before interest and taxes (EBIT) by approximately $1 million in the first quarter. If the rates changed by similar amounts in an unfavorable direction, it could affect profit margins and the investor’s belief of growth, which they already punish. I will be looking at the second quarter revenues compared to the $99.85 million expected. A shortfall due to currency fluctuations would be less concerning than a shortfall caused by fewer new subscribers.

New subscriber growth is slowing down. The current valuation relies heavily on the idea that the base of recurring subscribers will keep growing. If the number of new subscribers falls significantly below the expected 160,000 to 180,000 range, subscription growth could drop to the low teens. In that case, my current valuation multiple of 17 times earnings would no longer be justified, and the stock’s fair value would be closer to $52. The key indicator here is the quarterly number of net new subscribers. If this number consistently stays below about 35,000 per quarter for a while, it would be a warning sign.

The company is heavily concentrated in Israel and Brazil. Both countries have political and economic risks that are not present for competitors in the U.S. telematics industry. Any significant event in either market can impact revenue and investor sentiment. I track the revenue mix from each country every quarter to see if there are any major shifts from the current 57% from Israel, 22% from Brazil, and 21% from other regions.

The projected dividend is $2.00 per share annually, which at the current stock price of $51.81, yields about 3.86%. This compares to the past year’s dividend, which was $3.00 per share and included larger, one-time payments. The forward dividend represents about 57% of the company’s earnings, which appears manageable and leaves room for share repurchases. I think it’s better to state the expected future dividend rate rather than have shareholders assume the higher trailing yield of roughly 5.79% is the ongoing rate.

Buy, And I Get Paid To Be Patient

So, I’ll rate this stock a Buy.

The $3.50 per share in earnings for FY2026 is the key number that the rating is based on. The base is $59.50 and the company’s own recent 17 times multiple is applied to it. All other elements of this argument say why this multiple should be stuck to a rising earnings base, and why the downside is shallow because of the net cash and the unpriced optionality.

If subscriber adds slip well below the 160,000 to 180,000 range, or FY2026 earnings track below about $3.30, the compounding I’m paying 17 times for is not there, my fair multiple slides toward 15 times, the fair value drops to about $52 and I’ll switch to Hold.