11:16 AM EDT, 08/11/2025 (MT Newswires) -- Advanced Drainage Systems' ( WMS ) market leadership in stormwater management, cost advantages from vertical integration, and a shift toward higher-margin products position it to benefit from structural growth in water infrastructure, RBC Capital said in a note Monday.

The firm said the company is growing 6% to 7% annually, with earnings before interest, taxes, depreciation, and amortization margins above 30% and free cash flow margins above 15%, driven by market share gains, the replacement of metal and concrete pipe with lighter, more durable corrugated HDPE, and growth in allied product sales.

For fiscal Q1, the company reported adjusted earnings per share of $1.95, surpassing the $1.75 consensus compiled by FactSet, on revenue of $829.9 million, compared to the expected $797.3 million.

Continued demand in stormwater solutions and contributions from high-margin product lines, including Infiltrator septic systems, are key earnings drivers, according to the note.

The brokerage said the 2019 acquisition of Infiltrator Water Technologies added a high-margin, asset-light septic systems line, expanding the portfolio and boosting consolidated gross margins by about 500 basis points.

While some investors have argued the company "over-earned" during the post-COVID period due to lower resin costs, RBC believes margin gains are structural, driven by mix, service differentiation, and operational discipline.

The firm has initiated an outperform rating on the stock and a price target of $159.

Price: 132.03, Change: +0.62, Percent Change: +0.47