Advanced Manufacturing And Reshoring Trends Will Fuel Future Potential

Key Takeaways

• Expanding into high-growth verticals and investing in advanced capabilities positions NN to capitalize on automation, electrification, and supply chain localization trends for sustained revenue growth.
  
• Portfolio rationalization, cost reductions, and selective M&A focus the business on high-margin segments, improving profitability and diversifying revenue streams beyond cyclical markets.
  
• Flat demand, raw material volatility, execution risks, financial constraints, and shifting global supply chains threaten NN's growth, profitability, and ability to fund strategic initiatives.

Catalysts

Designs, manufactures, and sells high-precision components and assemblies for various end markets in the United States, China, Brazil, Mexico, Germany, Poland, and internationally.

• The company is winning significant new business programs-$172M in cumulative wins year-to-date, with strong pipeline activity in growth verticals (medical, electrical, automotive, commercial vehicle); as these new product launches ramp up, they are expected to drive sustained revenue growth above current levels.
  
• Increasing investment in advanced manufacturing capabilities, expansion into dedicated medical products, and ongoing recruitment of specialized sales and engineering talent position NN to capture rising demand from industries embracing automation, electrification, and supply chain reshoring-setting up for broadening revenue sources and margin improvement.
  
• Portfolio rationalization and a focus on high-margin business lines (e.g., precision bearings, engineered solutions), along with the closure of underperforming facilities and cost-reduction initiatives, have already expanded adjusted gross and EBITDA margins, with a stated internal goal of 20% gross margin and 13–14% EBITDA margin over the next several years-supporting improved long-term net earnings.
  
• Active participation in supply chain localization (reshoring) trends, especially in North America and Europe, is leading to increased RFQs and growth opportunities, as customers shift sourcing away from global supply chains; this could enhance NN's future top-line growth and pricing power as a local supplier.
  
• Strategic CapEx and selective M&A activity are accelerating entry into high-growth, high-barrier verticals (e.g., medical, electrical wiring systems, data centers) and help diversify the business beyond cyclical markets, setting up for compounded revenue and earnings potential as secular trends like electrification and automation continue to accelerate.

NN Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NN's revenue will grow by 3.8% annually over the next 3 years.
• Analysts are not forecasting that NN will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate NN's profit margin will increase from -12.8% to the average US Machinery industry of 9.7% in 3 years.
• If NN's profit margin were to converge on the industry average, you could expect earnings to reach $47.0 million (and earnings per share of $0.92) by about August 2028, up from $-55.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, up from -2.2x today. This future PE is lower than the current PE for the US Machinery industry at 24.5x.
• Analysts expect the number of shares outstanding to grow by 0.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

NN Future Earnings Per Share Growth

Risks

• Persistent flat or uncertain demand in key end markets, especially automotive and U.S. GDP-linked industrial verticals, could limit future revenue growth despite NN's new business wins, as near-term industry expectations remain subdued due to tariffs, weak vehicle affordability, and fading EV incentives.
  
• Ongoing exposure to volatile raw material prices (steel, aluminum, copper, precious metals) is keeping working capital high and remains a risk for net margin stability; continued cost inflation or supply chain disruptions could compress profitability even as efficiency programs progress.
  
• NN's projections for higher revenue rely heavily on the timely launch and ramp-up of numerous new programs; delays, customer nervousness, or push-outs (noted particularly in the automotive segment) present execution risk that could lead to missed top-line and earnings targets.
  
• The company is investing significantly into growth areas (medical, electrical, China auto markets) and M&A, but persistent legacy debt, elevated capital requirements, and a need to refinance preferred stock may constrain cash flow and limit funds available for R&D, capex, or further margin improvement.
  
• Global supply chain localization, protectionism, and rapid shifts in customer sourcing strategies (such as reshoring in North America or European customers moving production to China/Mexico) could generate both margin and volume headwinds if NN cannot adapt quickly enough, potentially eroding export-driven revenue and impacting long-term earnings.

Valuation

• The analysts have a consensus price target of $5.75 for NN 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 $7.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $485.5 million, earnings will come to $47.0 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $2.42, the analyst price target of $5.75 is 57.9% 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.