Launch Of New Through-the-Floor Lift And LU/LA Elevator Will Expand Global Presence

Key Takeaways

• Savaria's strategic initiatives, including new product launches and price adjustments, are aimed at driving organic growth and enhancing profitability.
  
• Leveraging a strong balance sheet for potential acquisitions and operational improvements is expected to bolster earnings and expand market presence.
  
• New U.S. tariffs and economic uncertainties challenge Savaria's growth, risking revenue volatility and squeezing profit margins due to potential shifts in demand and cost structures.

Catalysts

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

• Savaria is poised for organic growth with the launch of its new through-the-floor lift and LU/LA elevator, targeting increased sales worldwide. This is expected to positively impact revenue.
  
• The company is leveraging its strong balance sheet, with $242 million in available funds, to explore acquisitions and investments, potentially bolstering future earnings.
  
• Operational improvements under the Savaria One program, including lower material costs, improved pricing, and increased efficiency, are driving gross margin enhancements. This could positively impact net margins.
  
• Expansion of Savaria’s U.S. footprint, with available capacity in existing factories for assembly, is a strategic move to mitigate tariff impacts and potentially improve earnings.
  
• Strategic price increases to offset tariff effects are expected to maintain profitability levels, likely affecting net margins and earnings favorably in the longer term.

Savaria Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Savaria's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.6% today to 8.9% in 3 years time.
• Analysts expect earnings to reach CA$90.9 million (and earnings per share of CA$1.45) by about March 2028, up from CA$48.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.2x on those 2028 earnings, down from 24.1x today. This future PE is lower than the current PE for the CA Machinery industry at 30.9x.
• Analysts expect the number of shares outstanding to grow by 0.64% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.26%, as per the Simply Wall St company report.

Savaria Future Earnings Per Share Growth

Risks

• The impact of U.S. tariffs on products exported from Canada is uncertain, potentially affecting cost structures and squeezing profit margins, leading to a reviewed lower EBITDA margin guidance of 17% to 20% for 2025.
  
• The contraction of the European Accessibility segment by 1.9% in the quarter highlights challenges in maintaining growth across all regions, potentially impacting future revenues.
  
• The lost revenue from divestments like Van-Action and Freedom exceeded new gains from acquisitions within the year, suggesting possible revenue volatility impacting earnings.
  
• Introduction of new tariffs could necessitate price increases to customers, which might affect demand and revenue, especially if customers are price-sensitive.
  
• Economic indicators such as new house starts in North America—which are tied to elevator and accessibility operations—pose uncertainty, risking variability in revenue generation.

Valuation

• The analysts have a consensus price target of CA$23.714 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$1.0 billion, earnings will come to CA$90.9 million, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of CA$16.39, the analyst price target of CA$23.71 is 30.9% 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.