Increasing Demand For Neuro And Aortic Treatments Will Fuel Future Expansion

Key Takeaways

• Terumo's expansion and innovation in the U.S. and Europe showcase strong growth potential, promising enhanced future revenue streams and profitability.
  
• Strategic pricing and restructuring efforts, along with rising demand for medical treatments, could significantly improve profit margins and drive earnings growth.
  
• Rising raw material costs, potential U.S. tariff changes, and restructuring expenses could squeeze profit margins and negatively impact earnings and revenue growth.

Catalysts

Engages in the manufacture and sale of medical products and equipment in Japan, Europe, China, the United States, Asia, and internationally.

• Terumo's expansion into the U.S. and Europe, particularly through the Cardiac and Vascular Company division, shows strong double-digit growth potential, which is likely to enhance future revenue streams due to high demand in these regions.
  
• The launch and scaling of the Rika plasma innovation business at an increasing number of plasma collection centers indicate an upward trajectory in sales and profitability, impacting earnings positively in the near future.
  
• With strategic pricing improvements and foreign exchange benefits already enhancing profit margins this year, continued focus on these areas could result in further net margin improvements and contribute to stronger earnings growth.
  
• Ongoing restructuring and optimization initiatives, including those related to their business structure, promise potential cost savings and increased efficiencies, which should positively influence net income and profit margins over time.
  
• Increasing demand for Neuro and Aortic treatments and sustained growth in the blood and cell technologies segment (especially in emerging markets) could significantly boost future sales, contributing to stronger revenue growth projections.

Terumo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Terumo's revenue will grow by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.4% today to 14.5% in 3 years time.
• Analysts expect earnings to reach ¥180.2 billion (and earnings per share of ¥122.66) by about May 2028, up from ¥125.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ¥140.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.1x on those 2028 earnings, down from 32.3x today. This future PE is greater than the current PE for the JP Medical Equipment industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 0.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.54%, as per the Simply Wall St company report.

Terumo Future Earnings Per Share Growth

Risks

• The increase in raw material prices and potential changes in U.S. tariff policies could impact production costs and ultimately squeeze profit margins, affecting net income.
  
• A one-time cost related to a portfolio review and business restructuring has already been recorded, with the possibility of additional restructuring costs, which could negatively impact earnings in the short term.
  
• There is an underperformance issue with some pharmaceutical projects leading to suspension and impairment losses, which may affect revenue contributions from this segment.
  
• The blood center business faced a decline in sales in emerging markets like Asia and the Middle East, which could impact overall revenue growth.
  
• While the currency exchange effects have positively impacted revenue, any adverse fluctuations in the future could negatively affect earnings, given the dependency on foreign markets.

Valuation

• The analysts have a consensus price target of ¥3197.857 for Terumo 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 ¥3800.0, and the most bearish reporting a price target of just ¥2700.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥1239.5 billion, earnings will come to ¥180.2 billion, and it would be trading on a PE ratio of 30.1x, assuming you use a discount rate of 5.5%.
• Given the current share price of ¥2739.0, the analyst price target of ¥3197.86 is 14.3% 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.