Strategic divestments and cost reductions aim to strengthen the balance sheet and improve net margins through operational expense reductions.
Growth initiatives focus on product launches and geographic expansion, enhancing earnings in key segments and potentially increasing overall revenue.
Declines in key sectors and economic uncertainties could threaten Orbia's growth, financial stability, and profitability, highlighting its vulnerability to market conditions and leverage issues.

About Orbia Advance Corporation. de

Orbia Advance Corporation, S.A.B. de C.V.What are the underlying business or industry changes driving this perspective?

Orbia's cost reduction program is on track to deliver significant savings, targeting $250 million per year by 2027, which could improve net margins by reducing operational expenses.
Revenue growth is expected from new product launches and geographic expansions such as the new manufacturing plant in Indonesia and capacity expansion in North America, potentially increasing overall revenue.
Strategic divestments of noncore assets, with a target of $150 million by the end of 2026, are aimed at strengthening the balance sheet and possibly reducing net debt to support financial stability.
Continued focus on growing the Precision Agriculture and Fluor & Energy Materials segments, which are experiencing solid revenue growth due to demand for innovative solutions, could enhance earnings.
Connectivity Solutions is expected to benefit from increased demand as network investment activity normalizes, which could result in higher utilization rates and increased profitability, positively impacting net margins.

Orbia Advance Corporation. de Earnings and Revenue Growth

How have these above catalysts been quantified?

Analysts are assuming Orbia Advance Corporation. de's revenue will grow by 4.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 2.2% today to 2.8% in 3 years time.
Analysts expect earnings to reach $237.1 million (and earnings per share of $0.09) by about May 2028, up from $165.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $291 million in earnings, and the most bearish expecting $164.2 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.8x on those 2028 earnings, up from 8.2x today. This future PE is greater than the current PE for the MX Chemicals industry at 12.8x.
Analysts expect the number of shares outstanding to decline by 0.38% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 21.96%, as per the Simply Wall St company report.

What could happen that would invalidate this narrative?

The decline in Polymer Solutions and Building & Infrastructure revenues, partly due to lower prices and operational disruptions, poses a risk to future revenue growth and profitability.
High leverage levels and an increase in net debt to EBITDA ratio, driven by decreased cash and increased total debt, could impact financial stability and increase interest expenses, affecting net earnings.
The ongoing economic and tariff uncertainties, particularly the potential for a slowdown in economic activity, could negatively influence demand and pricing across various markets, impacting overall revenues.
Weakness in key geographic markets, especially parts of Continental Europe and Mexico, has impacted revenues and could continue to pose a risk if market conditions do not improve significantly, affecting both revenue and margins.
Nonrecurring costs such as restructuring expenses and asset divestments, while aimed at future cost efficiency, could temporarily strain net margins and cash flow, impacting short-term financial performance.

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of MX$28.167 for Orbia Advance Corporation. de 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 MX$62.04, and the most bearish reporting a price target of just MX$12.01.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.5 billion, earnings will come to $237.1 million, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 22.0%.
Given the current share price of MX$13.9, the analyst price target of MX$28.17 is 50.7% 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.