Walmart Robotics And Ohmnilabs Simulation Will Empower Retail Automation

Key Takeaways

• Acquisitions and commercial agreements are expected to boost revenue growth, technology advancement, and deployment efficiency in the retail automation sector.
  
• Diversification into cold chain systems and new verticals can expand revenue, while strong recurring revenue growth suggests potential for margin expansion.
  
• Execution risks, integration complexity, and cash flow variability could pressure profitability and margins if growth synergies are not effectively realized.

Catalysts

An automation technology company, develops technologies to enhance operating efficiencies in modern warehouses.

• Symbotic's acquisition of Walmart's Advanced Systems and Robotics business and the related commercial agreement provide a significant opportunity through a $5 billion future backlog, which, if executed successfully, can drive revenue growth and an enhanced technology platform in the retail automation space.
  
• The integration of new talent, such as CTO James Kuffner, and investments in advanced simulation tools and software through acquisitions like Ohmnilabs can accelerate innovation, leading to faster deployment of new technology features, which could improve implementation speeds, lower operational costs, and improve net margins.
  
• The shift to more in-sourcing of deployment functions has the potential to reduce costs and improve deployment execution, which could enhance gross margins and operating efficiency over time, supporting better earnings.
  
• Recurring revenue from software and operation services, which grew 80% year-over-year and delivered high margins, indicates a strong potential for future margin expansion and profitability as more systems become operational.
  
• Symbotic's development of cold chain and back of store systems, along with potential entry into new verticals such as CPG companies and medical supplies, presents opportunities for diversification and expanded revenue streams in the coming years.

Symbotic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Symbotic's revenue will grow by 26.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.7% today to 14.9% in 3 years time.
• Analysts expect earnings to reach $573.0 million (and earnings per share of $1.19) by about April 2028, up from $-14.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $640.9 million in earnings, and the most bearish expecting $260.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.5x on those 2028 earnings, up from -154.6x today. This future PE is greater than the current PE for the US Machinery industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 5.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

Symbotic Future Earnings Per Share Growth

Risks

• There are execution risks in deploying the systems at scale, and complexities in managing new deployments could impact the company's revenue and margins if not adequately addressed.
  
• The integration of multiple recent acquisitions, such as Ohmnilabs and Walmart’s systems, presents a potential challenge, leading to increased operational complexity, which could affect profitability.
  
• The commentary on cash flow indicated variability due to timing of cash receipts, implying potential cash flow management issues that could affect the company’s ability to invest in growth initiatives.
  
• The Operation Services segment is currently posting a negative gross profit due to increased resource support, which could continue to pressure overall margins if not managed effectively.
  
• Investments in scaling operations and recent acquisitions have increased operating expenses, and any failure to realize expected synergies or growth could negatively impact the net margins and earnings.

Valuation

• The analysts have a consensus price target of $32.945 for Symbotic 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 $60.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $573.0 million, and it would be trading on a PE ratio of 48.5x, assuming you use a discount rate of 7.0%.
• Given the current share price of $20.28, the analyst price target of $32.94 is 38.4% 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.