Tech-Driven Solutions Will Capture Market Share In Electronics And Aerospace

Key Takeaways

• Strategic investments and tech-driven innovations in high-potential markets like Electronics and aerospace are key growth drivers for Henkel's revenue.
  
• Portfolio optimization, sustainability commitments, and brand valorization aim to enhance net margins and support long-term growth and earnings.
  
• Henkel faces revenue challenges due to regional variances, competitive pressures, economic sensitivity, and currency headwinds impacting both revenue and profitability.

Catalysts

Engages in the adhesive technologies and beauty care, and laundry and home care businesses worldwide.

• Henkel's Adhesive Technologies unit is showing strong growth, particularly in the Electronics sector, driven by tech-driven innovations and sustainability-focused solutions. This can positively impact revenue as these industries expand and adopt new technologies.
  
• The company is executing portfolio optimization measures in Consumer Brands, expected to conclude by year-end 2023, which should lead to improved volumes and ultimately enhance net margins and earnings in 2024 and beyond.
  
• Henkel's strategic investments in growth segments, such as MRO and aerospace, demonstrate strong commitment to capturing market share in high-potential markets, potentially driving revenue through innovative product offerings.
  
• The company's focus on valorizing its Consumer Brands through tech-driven innovations and marketing investments aims to strengthen brand positioning and support better pricing strategies, impacting both revenue and net margins positively.
  
• Henkel's commitment to sustainability with its net-zero targets and transformation plans can bolster brand reputation and customer loyalty, potentially driving long-term revenue growth and supporting overall earnings improvement.

Henkel KGaA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Henkel KGaA's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.3% today to 9.7% in 3 years time.
• Analysts expect earnings to reach €2.3 billion (and earnings per share of €5.44) by about December 2027, up from €1.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.7x on those 2027 earnings, down from 19.6x today. This future PE is lower than the current PE for the GB Household Products industry at 25.7x.
• Analysts expect the number of shares outstanding to decline by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.26%, as per the Simply Wall St company report.

Henkel KGaA Future Earnings Per Share Growth

Risks

• The challenging business environment in some of Henkel's markets may impact revenue growth, as evidenced by regional variances and mixed results in key areas such as North America. This could lead to underwhelming revenue performance.
  
• Discontinuations in Consumer Brands are noted to distort volume and market share development, which may continue affecting sales volume negatively until the end of the year, impacting overall earnings.
  
• Henkel's business performance is sensitive to external economic indicators, such as fluctuations in industrial production indices, which could lead to unpredictable revenue streams for both Adhesive Technologies and Consumer Brands divisions.
  
• The hesitation in volume recovery in the North American market, particularly in Laundry & Home Care, hints at increased competitive pressures that could result in pricing adjustments and affect net margins if strategic portfolio valorization isn't well-received.
  
• Currency exchange fluctuations, indicated as a headwind of minus 3.6% on sales in the third quarter, present a persistent risk that could affect both top-line revenue and net profitability if adverse trends continue.

Valuation

• The analysts have a consensus price target of €85.11 for Henkel KGaA 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 €100.0, and the most bearish reporting a price target of just €73.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €23.3 billion, earnings will come to €2.3 billion, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 4.3%.
• Given the current share price of €83.46, the analyst's price target of €85.11 is 1.9% 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.