The Expansion Of MirrorEye Technology And LDM Launch Will Drive Future Earnings

Key Takeaways

• Expansion of MirrorEye technology and partnerships in key markets is expected to drive significant future revenue growth.
  
• Operational efficiency and financial discipline improvements are likely to enhance net margins and support future earnings growth.
  
• Macroeconomic pressures, decreased sales, and unfavorable product mix are undermining revenue, net margins, and earnings forecasts.

Catalysts

Designs and manufactures engineered electrical and electronic systems, components, and modules for the automotive, commercial, off-highway, motorcycle, and agricultural vehicle markets in North America, South America, Europe, and internationally.

• The expansion of the MirrorEye technology into OEM and fleet channels, with notable launches in Europe and North America, including its adoption as standard equipment on several truck platforms, is expected to drive significant future revenue growth.
  
• The introduction of the Leak Detection Module (LDM) for hybrid vehicles, a growing market segment, positions Stoneridge to capitalize on increased demand for emissions solutions, positively impacting future revenues.
  
• Stoneridge's operational efficiency measures, such as reduced quality-related costs and operating expenses, are likely to enhance future net margins as market conditions stabilize.
  
• The ramp-up of MirrorEye programs, particularly with partnerships like Daimler Truck North America, suggests an increase in demand and customer take rates, which is anticipated to boost earnings.
  
• The ongoing reduction in inventory and improved cash performance indicate financial discipline, likely supporting future earnings growth through better capital allocation and reduced interest expenses.

Stoneridge Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Stoneridge's revenue will decrease by 0.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.8% today to 2.0% in 3 years time.
• Analysts expect earnings to reach $18.4 million (and earnings per share of $0.67) by about January 2028, up from $-7.4 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 27.1x on those 2028 earnings, up from -20.1x today. This future PE is greater than the current PE for the US Auto Components industry at 17.9x.
• Analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.66%, as per the Simply Wall St company report.

Stoneridge Future Earnings Per Share Growth

Risks

• The company's quarterly sales decreased by 9.8% compared to the previous quarter, driven by macroeconomic pressures across primary end markets, which could negatively affect revenue.
  
• Decreased margins due to reduced fixed cost leverage on lower sales and unfavorable sales mix could lead to lower net margins.
  
• Significant third-quarter revenue impact from reduced customer production and lower MirrorEye aftermarket products suggests vulnerabilities in earning forecasts.
  
• Lower-than-expected volumes related to MirrorEye and off-highway products create an unfavorable mix impact, with potential to decrease earnings.
  
• The persisting macroeconomic headwinds and lowered production volumes in primary end markets might further diminish revenue and earnings.

Valuation

• The analysts have a consensus price target of $14.0 for Stoneridge 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 $16.0, and the most bearish reporting a price target of just $12.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $933.3 million, earnings will come to $18.4 million, and it would be trading on a PE ratio of 27.1x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of $5.37, the analyst's price target of $14.0 is 61.6% 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.