Lean Measures And New Products Will Penetrate Chinese OEM Markets

Key Takeaways

• Cost-saving measures and innovative product launches are expected to drive margin expansion, improved earnings, and revenue growth, particularly in electric and hybrid markets.
  
• Expansion into Chinese OEM markets and operational efficiencies are anticipated to foster positive cash flow, strengthen financials, and support earnings growth.
  
• Continued financial challenges, coupled with weak production volumes and foreign exchange risks, may impact revenues and necessitate refinancing, affecting future stability.

Catalysts

Through its subsidiary, Cooper-Standard Automotive Inc., manufactures and sells sealing, fuel and brake delivery, and fluid transfer systems in the United States, Mexico, China, Poland, Canada, Germany, France, and internationally.

• Cooper-Standard has implemented several cost-saving measures, including a streamlined product-based organization structure and lean initiatives in their supply chain, which have already resulted in substantial cost savings. These actions are expected to continue driving margin expansion and improve net margins and earnings in 2025.
  
• The company has a strong pipeline of new product innovations, such as their Fluids manifold and FlexiCore thermoplastic body seal technology, which are expected to increase their content per vehicle. This innovation is likely to drive revenue growth as these products reach full production and penetrate electric and hybrid vehicle markets.
  
• Cooper-Standard is leveraging its technology and innovations to penetrate Chinese domestic OEM markets, transitioning their revenue mix significantly towards high-growth markets. This shift is anticipated to positively impact revenue growth and boost overall earnings.
  
• The company has outlined expectations for free cash flow to remain positive in 2025, driven by continuing operational efficiencies, savings initiatives, and better terms with suppliers. This will strengthen their balance sheet, improve liquidity, and support ongoing operations and debt service.
  
• Expectations for double-digit EBITDA margins by the end of 2025 are based on improved operational efficiencies, higher-margin new business launches, and strategic cost management. Achieving these margins should enhance earnings and overall financial performance.

Cooper-Standard Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cooper-Standard Holdings's revenue will grow by 5.2% annually over the next 3 years.
• Analysts are not forecasting that Cooper-Standard Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Cooper-Standard Holdings's profit margin will increase from -2.9% to the average US Auto Components industry of 4.8% in 3 years.
• If Cooper-Standard Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $153.5 million (and earnings per share of $9.03) by about April 2028, up from $-78.7 million 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 3.1x on those 2028 earnings, up from -2.5x today. This future PE is lower than the current PE for the US Auto Components industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Cooper-Standard Holdings Future Earnings Per Share Growth

Risks

• The company experienced a decrease in sales by 3% in 2024 due to unfavorable volume and mix, divestitures, and foreign exchange, which could negatively affect future revenue.
  
• Despite improvements, the company still incurred an adjusted net loss of $56.7 million for the year, indicating underlying financial challenges that could impact net margins.
  
• The expectation of weak production volumes in 2025 may negatively impact overall earnings and revenue generation capabilities.
  
• The financial results are influenced by foreign exchange impacts, which could continue to be a risk and affect revenue unpredictably.
  
• The potential need to refinance debt could impact financial stability and increase the cost of capital, affecting net earnings in the future.

Valuation

• The analysts have a consensus price target of $20.0 for Cooper-Standard Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.2 billion, earnings will come to $153.5 million, and it would be trading on a PE ratio of 3.1x, assuming you use a discount rate of 11.4%.
• Given the current share price of $11.16, the analyst price target of $20.0 is 44.2% 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.