Flex Partnership And Robotic Mower Launches Will Boost Future Competitiveness

Key Takeaways

• Strategic partnerships and divestitures aim to enhance competitiveness and profitability, particularly in North America, while transforming operations for efficiency.
  
• Focus on electrification, sustainability, and robotic innovations positions Husqvarna for market share growth and strong financial performance in growing demand segments.
  
• Challenging market conditions, increased competition, and strategic operational changes may negatively impact Husqvarna's future profitability and growth despite cost-saving efforts.

Catalysts

Produces and sells outdoor power products, watering products, and lawn care power equipment.

• Husqvarna's divestiture of its largest manufacturing site and strategic partnership with Flex is likely to enhance competitiveness in North America, potentially improving profitability and operational margins over the long term.
  
• The focus on professional robotic mowers and battery-powered products is expected to drive strong growth in these segments, influencing revenue positively as market demand for such products increases.
  
• Husqvarna's ongoing cost-saving programs and organizational transformation measures are expected to improve operational efficiency and reduce the cost base, likely supporting higher net margins.
  
• The extensive launch program for new residential and professional robotic mowers, including boundary wire-free models, signals potential for increased market share and revenue growth in high-value segments.
  
• The strategic focus on operational ambitions like electrification and connected devices, combined with sustainability targets in carbon emission reductions, positions Husqvarna for long-term growth and improved financial performance in terms of revenue and earnings.

Husqvarna Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Husqvarna's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 6.1% in 3 years time.
• Analysts expect earnings to reach SEK 3.3 billion (and earnings per share of SEK 5.7) by about March 2028, up from SEK 1.3 billion 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 14.5x on those 2028 earnings, down from 23.4x today. This future PE is lower than the current PE for the GB Machinery industry at 25.3x.
• 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 6.83%, as per the Simply Wall St company report.

Husqvarna Future Earnings Per Share Growth

Risks

• Husqvarna is grappling with challenging market conditions and a cautious approach from dealers and retailers, which could negatively impact future revenues and earnings.
  
• Lower capacity utilization in factories and an unfavorable product mix have led to decreased margins, indicating potential risks to future profitability and earnings.
  
• The company faces increased competition, particularly in the residential robotics segment, which could pressure revenues from this critical area of business.
  
• Strategic changes, like the divestiture of the Orangeburg manufacturing site, although aimed at long-term efficiency, may incur short-term operational cost increases that could affect net margins and earnings.
  
• Despite executing cost-saving programs, negative price pressures in the market, along with potential currency fluctuations, could adversely affect revenue and profit growth trajectories.

Valuation

• The analysts have a consensus price target of SEK68.0 for Husqvarna 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 SEK85.0, and the most bearish reporting a price target of just SEK48.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK53.5 billion, earnings will come to SEK3.3 billion, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of SEK54.12, the analyst price target of SEK68.0 is 20.4% 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.