Integration Of Atrion Acquisition Will Boost Manufacturing Efficiencies With NBS Next

Key Takeaways

• Integration of the Atrion acquisition, along with NBS Next implementation, is set to improve profitability and enhance net margins and earnings.
  
• Strong innovation pipeline and increased backlog suggest organic revenue growth and potential sales rebound, boosting overall revenue and earnings.
  
• Soft demand, currency volatility, and higher debt-related expenses may pressure Nordson's revenue and earnings across key segments.

Catalysts

Nordson Corporation engineers, manufactures, and markets products and systems to dispense, apply, and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids.

• Nordson's integration of the Atrion acquisition is expected to improve profitability as they implement NBS Next to enhance manufacturing efficiencies. This could positively impact net margins and earnings as Atrion performance exceeds initial targets.
  
• The company's strong innovation pipeline, including new product launches like the Harmony applicator and SpinSAM Acoustic Inspection system, is anticipated to drive organic revenue growth across key segments such as adhesives and electronics.
  
• Nordson's increased backlog and accelerated order entry rates, particularly in their electronics businesses, indicate a potential rebound in sales, positively impacting overall revenue and earnings.
  
• Strategic cost management and factory efficiencies, through initiatives like NBS Next, are expected to sustain high gross margins and operating profit margins, despite lower sales volumes.
  
• Nordson’s lower leverage ratio due to reduced net debt and strategic allocation of capital for share repurchases and dividends is likely to support enhanced earnings per share (EPS) growth.

Nordson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nordson's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.9% today to 18.9% in 3 years time.
• Analysts expect earnings to reach $607.9 million (and earnings per share of $10.92) by about April 2028, up from $452.4 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 28.4x on those 2028 earnings, up from 25.3x today. This future PE is greater than the current PE for the US Machinery industry at 20.8x.
• Analysts expect the number of shares outstanding to decline by 0.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.57%, as per the Simply Wall St company report.

Nordson Future Earnings Per Share Growth

Risks

• The company reported weaker-than-expected sales at the start of the fiscal year due to soft demand in key end markets, including electronics and industrial, which could negatively impact future revenue and earnings.
  
• A foreign exchange headwind was worse than expected, contributing to lowered sales figures. Continued currency volatility could impact net margins and earnings.
  
• Nordson’s industrial segment experienced significant declines due to weaker system sales and ongoing transitions in manufacturing locations, affecting revenue growth potential.
  
• The Medical and Fluid Solutions segment saw double-digit declines in certain product lines due to ongoing destocking trends, which if prolonged beyond expectations, could further pressure revenues and operating margins.
  
• The increase in net interest expense due to higher debt levels from recent acquisitions may weigh on net earnings if organic revenue growth does not meet expectations to cover these costs.

Valuation

• The analysts have a consensus price target of $252.064 for Nordson 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 $285.0, and the most bearish reporting a price target of just $219.0.
• 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 $607.9 million, and it would be trading on a PE ratio of 28.4x, assuming you use a discount rate of 7.6%.
• Given the current share price of $200.95, the analyst price target of $252.06 is 20.3% 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.