Fit For 2025 And John Deere Partnership Will Expand Markets

Key Takeaways

• The Fit for 2025 program and infrastructure initiatives may enhance profitability and offer significant business expansion opportunities in the future.
  
• New product lines and innovations like emission-free machines could boost sales growth and increase future revenues.
  
• Significant revenue decline and weak demand, coupled with restructuring costs, geopolitical risks, and delayed restructuring benefits, pressure Wacker Neuson's revenue and margin growth.

Catalysts

Manufactures and distributes light and compact equipment in Germany, Austria, the United States, and internationally.

• The Fit for 2025 program aims to streamline operations and optimize efficiencies, potentially increasing profitability and improving EBIT margins in the future.
  
• A gradual recovery in order intake and normalization of dealer stocks are expected from Q2 2025 onwards, potentially boosting revenue as market conditions improve.
  
• The introduction of new product lines through the partnership with John Deere, beginning with European production and followed by U.S. production, could significantly enhance sales growth and expand revenue streams.
  
• The Bauma trade fair and innovations such as emission-free machines could drive customer interest and demand, potentially leading to higher future revenues.
  
• Germany's infrastructure initiative and the long-term growth potential from this project could provide significant opportunities for business expansion and revenue growth in future years.

Wacker Neuson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wacker Neuson's revenue will grow by 8.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 7.0% in 3 years time.
• Analysts expect earnings to reach €201.0 million (and earnings per share of €2.95) by about April 2028, up from €70.2 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 9.1x on those 2028 earnings, down from 22.2x today. This future PE is lower than the current PE for the GB Machinery industry at 17.3x.
• Analysts expect the number of shares outstanding to decline by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.04%, as per the Simply Wall St company report.

Wacker Neuson Future Earnings Per Share Growth

Risks

• The significant 16% year-on-year decline in revenue and ongoing weak demand across key markets, such as Europe and the Americas, reflects challenges in maintaining or growing revenue streams.
  
• The EBIT margin was negatively affected by restructuring costs and higher R&D expenses, leading to deteriorating net margins, particularly with a drop from 4.8% to 2.7% in Q4.
  
• Lower demand and excessive dealer stock in major markets like the U.S. and Europe indicate potential difficulties in boosting earnings in the short term.
  
• The impact of geopolitical uncertainties, such as tariffs and the Ukraine conflict, adds risk to supply chain management and revenue stability in affected regions.
  
• The ongoing economic slowdown and delayed benefits from restructuring efforts may continue to pressure revenue and margin growth through at least the first quarter of 2025.

Valuation

• The analysts have a consensus price target of €23.167 for Wacker Neuson 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 €27.0, and the most bearish reporting a price target of just €16.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.9 billion, earnings will come to €201.0 million, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 6.0%.
• Given the current share price of €22.9, the analyst price target of €23.17 is 1.2% higher. The relatively low difference between the current share price and the analyst consensus 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.