Electric And Autonomous Shifts Will Undercut Traditional Revenue Streams

Key Takeaways

• Structural shifts to electric vehicles, sustainable freight, and new regulations threaten JOST's traditional market and expose its revenues to long-term decline.
  
• Intensifying low-cost competition and overdependence on cyclical Western markets heighten margin pressures and earnings volatility, with limited diversification to offset risks.
  
• Successful Hyva integration, aftermarket expansion, and strong balance sheet position JOST to capitalize on industry trends, enhance margins, and sustain profitable global growth.

Catalysts

Manufactures and supplies safety-critical systems for the commercial vehicle industry in Germany, Europe, North America, Asia, Pacific, and Africa.

• The accelerating shift toward electric and autonomous vehicles is expected to structurally reduce demand for traditional truck and trailer components, which make up the bulk of JOST Werke's portfolio, resulting in long-term pressure on overall revenues as the addressable market shrinks.
  
• Stricter environmental regulations and increased focus on freight efficiency may dampen new production of conventional commercial vehicles, with OEM customers required to pivot investments toward alternative transport modes, leading to persistent decline in JOST's core OEM revenues and heightened earnings volatility.
  
• Growing adoption of rail and alternative, more sustainable freight logistics methods threatens to curb the growth of long-haul trucking, undermining JOST's primary end-market and directly limiting long-term revenue growth and margin expansion prospects.
  
• JOST's overreliance on cyclical regions such as Europe and North America-where recent results showed organic sales declines of 6% and 16% respectively-exposes the company to further downside in net margins and earnings during future downturns with little mitigating diversification in product or end-market exposure.
  
• The industry is experiencing rising competition from low-cost Asian suppliers and component commoditization, which are likely to erode pricing power, compress gross margins, and restrict the company's ability to pass on cost inflation, impeding both top-line and bottom-line growth over time.

JOST Werke Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on JOST Werke compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming JOST Werke's revenue will grow by 18.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.0% today to 5.0% in 3 years time.
• The bearish analysts expect earnings to reach €95.1 million (and earnings per share of €6.36) by about July 2028, up from €45.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, down from 18.4x today. This future PE is lower than the current PE for the GB Machinery industry at 19.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

JOST Werke Future Earnings Per Share Growth

Risks

• The successful integration of the Hyva acquisition is delivering higher-than-expected synergies and accretion to adjusted earnings per share starting from Q1, which could drive a stronger and more stable increase in profit margins and net earnings in coming years.
  
• JOST's significant expansion into aftermarket and services, particularly in the Americas where aftermarket now constitutes close to 40% of sales, is providing resilience against OEM cyclicality and supporting higher and more stable margins, which may sustain earnings growth through the cycle.
  
• Early signs of market stabilization and even improvement in EMEA and APAC, combined with substantial exposure to diversified global markets, suggest that the organic decline in revenue may be bottoming and set for reversal, bolstering future revenue growth.
  
• The company's robust free cash flow and successful refinancing of recent acquisitions have led to a solid balance sheet with leverage already below planned thresholds, supporting future investment, margin stability, and the potential for further growth in net income.
  
• Structural industry trends, such as growth in aftermarket share, digitization, and increasing regulatory requirements for advanced trailer and coupling solutions, align well with JOST's core strengths and engineering capabilities, potentially opening up new premium product avenues and driving both revenue growth and upward pressure on margins.

Valuation

• The assumed bearish price target for JOST Werke is €55.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of JOST Werke's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €75.0, and the most bearish reporting a price target of just €55.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €95.1 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of €56.2, the bearish analyst price target of €55.0 is 2.2% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.