Integration Of Atrion And Ascend Strategy Will Accelerate Growth In Medical And Electronics Markets

Key Takeaways

• Strategic acquisitions and operational efficiencies from the Ascend strategy and NBS Next are expected to drive consistent revenue growth and enhance margins.
  
• Expansion into high-growth markets like medical and electronics, combined with high-recurring revenue, supports increased revenue and market stability.
  
• Headwinds in key segments, acquisition integration costs, and geopolitical risks are pressuring Nordson's revenue growth, earnings, and market stability.

Catalysts

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

• Implementation of the Ascend strategy and the NBS Next growth framework has improved operational efficiency and structured strategic acquisitions like Atrion, which are expected to drive consistent revenue growth and potentially improve margins in 2025 and beyond.
  
• Expansion into high-growth end markets such as medical and electronics, through acquisitions like Atrion and strategic organic growth, is anticipated to increase Nordson's revenue over the coming years.
  
• Continued emphasis on high-recurring revenue and a diversified customer base serves as a catalyst for stabilizing and potentially increasing Nordson’s net margins despite market fluctuations.
  
• Successful integration of the Atrion acquisition is expected to enhance Nordson's addressable markets significantly, particularly in the medical segment, contributing positively to revenue and earnings growth.
  
• The company’s ability to leverage operational efficiencies and maintain strong EBITDA margins (notably in the ATS segment) during cyclical downturns positions it well for increased earnings when market conditions stabilize or improve.

Nordson Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nordson's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.4% today to 19.9% in 3 years time.
• Analysts expect earnings to reach $625.3 million (and earnings per share of $11.29) by about January 2028, up from $467.3 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 27.7x on those 2028 earnings, up from 26.9x today. This future PE is greater than the current PE for the US Machinery industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 1.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.17%, as per the Simply Wall St company report.

Nordson Future Earnings Per Share Growth

Risks

• Organic sales were down 3% in the fourth quarter compared to the prior year, highlighting challenges in maintaining consistent sales growth, which could affect future revenue projections.
  
• Year-over-year declines were noted in product categories within the Industrial Precision Solutions and Medical and Fluid Solutions segments, indicating potential difficulties in these markets and risks to revenue and net margins.
  
• There are significant headwinds anticipated in the Industrial Precision Solutions segment due to factors like reduced large capital investments and a slowdown in automotive and polymer processing markets, which might adversely impact revenue and earnings.
  
• The integration of the Atrion acquisition is expected to improve EBITDA margins over time, but current margins remain slightly lower due to associated costs, presenting a risk to net earnings in the short term.
  
• Ongoing cautiousness in medical interventional solutions purchasing and continued geopolitical risks affecting electronics markets suggest potential volatility and risks in revenue and profitability.

Valuation

• The analysts have a consensus price target of $255.82 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 $234.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.1 billion, earnings will come to $625.3 million, and it would be trading on a PE ratio of 27.7x, assuming you use a discount rate of 7.2%.
• Given the current share price of $220.5, the analyst's price target of $255.82 is 13.8% 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.