New 2025 Gardena Products And Cost-Saving Measures Will Strengthen Future Prospects

Key Takeaways

• Strategic partnerships and cost-saving programs aim to enhance profitability, capital efficiency, and positively impact net margins and future earnings.
  
• Expansion into new product lines and focus on robotic and battery-powered segments poised to drive significant revenue growth and improve cash flow.
  
• Husqvarna faces revenue growth challenges due to cautious market conditions, competition, inventory issues, and potential short-term cost increases from a recent divestiture.

Catalysts

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

• Husqvarna Group's strategic partnership with Flex is expected to improve profitability and deliver cost savings through increased capital efficiency as early as year three, impacting future earnings positively.
  
• The expansion into boundary wire-free residential robotics and an extensive new product launch program in 2025, including segments such as Gardena and Husqvarna brands, is expected to drive revenue growth.
  
• The focus on growing professional robotic mowers and battery-powered products, which saw strong growth in 2024, are positioned to continue contributing to revenue and improving earnings.
  
• The continuation and expansion of cost-saving programs into 2025, including a SEK 500 million fixed cost reduction plan announced in Q3 2024, suggest a potential positive impact on net margins.
  
• Significant reductions in net debt and improved cash flow from inventory management, such as the SEK 3.3 billion inventory reduction in 2024, set a stronger financial foundation, potentially lowering interest expenses contributing to better earnings.

Husqvarna Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Husqvarna's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 6.2% in 3 years time.
• Analysts expect earnings to reach SEK 3.3 billion (and earnings per share of SEK 5.8) by about February 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 14.8x on those 2028 earnings, down from 22.8x today. This future PE is lower than the current PE for the GB Machinery industry at 26.2x.
• 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 6.49%, as per the Simply Wall St company report.

Husqvarna Future Earnings Per Share Growth

Risks

• Husqvarna is facing a challenging operational environment with cautious market conditions among dealers and retailers, which could negatively impact future revenue growth.
  
• The company's net sales have declined by 3% organically, which suggests potential future revenue challenges.
  
• The divestiture of the Orangeburg manufacturing site, although aimed at improving competitiveness, involves risks of increased operational costs in the short term, which may pressure net margins.
  
• Husqvarna faces intense competition in the residential robotics segment, which could lead to pricing pressures and affect the company's earnings.
  
• Inventory management challenges, specifically in the watering segment, and high inventory levels could negatively affect net margins if not sold efficiently, impacting profitability.

Valuation

• The analysts have a consensus price target of SEK71.0 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 14.8x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of SEK52.88, the analyst price target of SEK71.0 is 25.5% 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.