Expansion Into Aerospace And Defense Will Open New High-Value Markets

Key Takeaways

• Broadwind’s expansion into higher-margin markets and enhancements in production efficiency could improve revenues and net margins.
  
• Investment in certifications and new markets like aerospace could boost revenues and earnings growth.
  
• The pause in wind tower demand and ongoing federal permitting challenges could severely impact revenue and margins, exposing Broadwind to financial risk through 2026.

Catalysts

Manufactures and sells structures, equipment, and components for clean tech and other specialized applications primarily in the United States.

• Broadwind is expanding its product mix into higher-margin adjacent markets, which could lead to increased revenue and net margins as they capitalize on demand in sectors like power generation and industrial solutions.
  
• Order rates increased significantly, with orders up 85% from the previous year, indicating strong forward-looking demand that can lead to higher revenues and improved capacity utilization.
  
• The company is investing in equipment technology and process improvements to enhance production efficiency, which is expected to reduce costs and improve net margins.
  
• Broadwind has undertaken cost-saving initiatives projected to yield approximately $4 million in annualized savings, positioning the company for improved operating leverage and earnings growth in 2025.
  
• Continued investment in gaining quality and security certifications opens opportunities in new high-value markets, such as aerospace and defense, potentially boosting revenues and improving overall earnings.

Broadwind Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Broadwind's revenue will grow by 5.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.8% today to 2.2% in 3 years time.
• Analysts expect earnings to reach $3.7 million (and earnings per share of $0.17) by about March 2028, up from $1.2 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 34.4x on those 2028 earnings, up from 27.7x today. This future PE is greater than the current PE for the US Electrical industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 2.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.28%, as per the Simply Wall St company report.

Broadwind Future Earnings Per Share Growth

Risks

• The ongoing pause in demand for new wind towers and oil and gas gearing could continue to negatively impact revenue, particularly if domestic onshore wind activity remains muted through 2026. This might lead to stagnation in earnings from key segments.
  
• Lower capacity utilization within certain segments, like Gearing, due to reduced order intake in previous quarters could further strain adjusted EBITDA margins despite cost-saving measures.
  
• The federal permitting challenges and potential project delays in the onshore wind market could lead to continued softness through 2026, potentially impacting future revenue growth from the wind sector.
  
• Although noting improvements in other markets, the overall concentration in a few industrial sectors could expose Broadwind to significant financial risk if there are sudden downturns, affecting both revenue and net margins.
  
• Despite recent positive activity and orders, any escalation of raw material costs due to tariff changes or supply chain issues could impact profitability if not successfully passed onto customers, putting pressure on earnings and net margins.

Valuation

• The analysts have a consensus price target of $4.0 for Broadwind 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 $6.0, and the most bearish reporting a price target of just $3.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $170.0 million, earnings will come to $3.7 million, and it would be trading on a PE ratio of 34.4x, assuming you use a discount rate of 10.3%.
• Given the current share price of $1.43, the analyst price target of $4.0 is 64.2% 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.