Aging Population Trends Will Drive Demand For Home Elevators

Key Takeaways

• Savaria's operational improvements and strategic product launches aim to boost margins and revenue growth in the Patient Care segment.
  
• Acquisitions and deleveraging enhance Savaria's market position and flexibility, supporting further growth in North America and Europe.
  
• Weak European sales, flat Patient Care revenue, and macroeconomic dependencies threaten growth; strategic initiatives and competitive pressures risk net earnings stability.

Catalysts

Provides accessibility solutions for the elderly and physically challenged people in Canada, the United States, Europe, and internationally.

• The ongoing Savaria One transformation includes operational improvements, procurement, and pricing strategies, which are expected to increase EBITDA margins from 19.5% towards the target of 20% by 2025. This will positively impact the company's net margins.
  
• New product launches and increased sales team efforts are expected to drive growth in the Patient Care segment, with an emphasis on capturing backlog and expanding sales. This should boost revenues and earnings growth moving forward.
  
• The company's strategy to grow organic revenue by 8% to 10% annually, aided by market trends like the aging population and demand for home elevators, suggests a positive outlook for revenue growth.
  
• The integration of new products from recent acquisitions, such as the Matot brand of dumbwaiters, is expected to expand Savaria's product offering and drive additional top-line growth in North America and Europe.
  
• Deleveraging efforts, which have reduced the net debt-to-EBITDA ratio to 1.69, enhance the company's financial position, increasing flexibility for potential strategic acquisitions. This can lead to further revenue and earnings growth through expanded market reach and product lines.

Savaria Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Savaria's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.3% today to 10.3% in 3 years time.
• Analysts expect earnings to reach CA$108.8 million (and earnings per share of CA$1.69) by about February 2028, up from CA$46.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.0x on those 2028 earnings, down from 28.4x today. This future PE is lower than the current PE for the CA Machinery industry at 30.5x.
• Analysts expect the number of shares outstanding to grow by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Savaria Future Earnings Per Share Growth

Risks

• Weak performance in Europe with a 6.6% decline in Q3 sales could impact overall revenue growth, especially if the market remains challenging and growth initiatives do not yield results in the near term.
  
• Flat sales in the Patient Care segment, affected by project-based sales and delays, pose a risk to consistent revenue streams and could hinder meeting growth targets if delays persist.
  
• Dependence on macroeconomic factors and geopolitical conditions, such as potential tariffs or changes in the U.S. administration, might affect manufacturing costs and supply chains, impacting net margins.
  
• The company’s significant strategic initiative expenses and reliance on further implementation of Savaria One initiatives could affect net earnings if anticipated efficiencies and profitability improvements do not materialize.
  
• High reliance on dealer operations and the potential impact of competitive pricing strategies might pressure profitability margins if they do not manage to sustain pricing discipline and avoid low-margin sales.

Valuation

• The analysts have a consensus price target of CA$25.929 for Savaria based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.1 billion, earnings will come to CA$108.8 million, and it would be trading on a PE ratio of 21.0x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of CA$18.27, the analyst price target of CA$25.93 is 29.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.