Integration Of Netstal And Global Expansion Will Strengthen Competitive Edge

Key Takeaways

• Strategic global expansion and acquisitions enhance growth potential, boosting earnings with improved production capacity and regional sales increases.
  
• Strong order backlog and disciplined pricing stabilize margins, ensuring predictable future financial performance and revenue growth.
  
• Economic challenges across major markets and high competition could pressure Krones' revenue growth, profitability, and market share adversely impacting future earnings.

Catalysts

Engages in the planning, development, and manufacture of machines and lines for the production, filling, and packaging technology in Germany and internationally.

• Krones is investing in increasing production capacity and reducing delivery times from 50 weeks to a target of 45-48 weeks, allowing for more efficient order fulfillment and potentially boosting revenue growth in 2025 and beyond.
  
• The acquisition and integration of Netstal have contributed to growth in revenue and are expected to improve profitability through increased sales in North America and other regions, positively impacting earnings.
  
• Krones is expanding its global presence with new facilities in China and India and enhancing capabilities in North America, strengthening its ability to capture growth in these key markets, thereby supporting future revenue and earnings growth.
  
• The focus on pricing discipline and profitability in Process Technology and Intralogistics segments is anticipated to stabilize margins and contribute to earnings improvement.
  
• The company’s robust order backlog provides a stable foundation for 2025 planning, with some orders already extending into 2026, enhancing visibility and predictability of future revenue and financial performance.

Krones Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Krones's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.8% today to 6.1% in 3 years time.
• Analysts expect earnings to reach €391.5 million (and earnings per share of €12.39) by about March 2028, up from €249.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €344.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.1x on those 2028 earnings, down from 17.3x today. This future PE is lower than the current PE for the GB Machinery industry at 17.7x.
• 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 5.51%, as per the Simply Wall St company report.

Krones Future Earnings Per Share Growth

Risks

• Challenges in North America, related to tariffs and political uncertainties, could hinder order intake and revenue growth, affecting future revenues.
  
• The existing high backlog and extended delivery times, despite reductions, could strain resources and delay revenue recognition.
  
• The economic slowdown in China presents risks to order intake and revenue performance in this major market.
  
• The performance in the Process Technology segment could slow down without strong growth in brewery orders, affecting overall revenue and profitability.
  
• High competition in the intralogistics and injection molding sectors, including from companies like Husky, could pressure margins and impact market share, affecting future earnings.

Valuation

• The analysts have a consensus price target of €152.0 for Krones based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €175.0, and the most bearish reporting a price target of just €137.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €6.4 billion, earnings will come to €391.5 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 5.5%.
• Given the current share price of €136.8, the analyst price target of €152.0 is 10.0% 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.