Next Generation Blade Production Will Redefine Industry Standards

Key Takeaways

• Portfolio restructuring and next-gen blade transition are set to improve operational performance, enhancing earnings and profitability.
  
• Expansion of U.S. production and innovation in quality initiatives aim to meet demand, increase revenue, and improve net margins.
  
• Regulatory uncertainty, facility underutilization, economic factors, supply chain challenges, and competitive pressures threaten TPI Composites' profitability and margins.

Catalysts

Manufactures and sells composite wind blades, and related precision molding and assembly systems to original equipment manufacturers (OEMs) in the United States, Mexico, Europe, the Middle East, Africa, and India.

• The successful restructuring of TPI's portfolio by divesting loss-making operations and transitioning production lines to next-generation blades is expected to enhance operational performance, leading to a projected $80 million improvement in adjusted EBITDA in 2025. This should positively impact earnings.
  
• Ramping up production lines and investment in 24/7 operations at Mexico facilities to meet increasing U.S. market demand suggests a significant increase in blade shipments, anticipated to drive a high single-digit revenue growth in 2025.
  
• The implementation of the Blade Assure quality initiative, incorporating AI, automation, and advanced sensors, aims to establish a new industry standard for blade manufacturing, potentially reducing production costs and improving product quality, which may enhance net margins and profitability.
  
• Strategic focus on lean culture and operational efficiencies, including a centralized Lean Awareness hub, projects cost savings and supply chain optimization, contributing to improved EBITDA margins anticipated to be in the 2% to 4% range for 2025.
  
• The reopening of the Iowa facility and potential expansion of new manufacturing capacity in the U.S., driven by increasing demand and strong OEM interest, indicates anticipated revenue growth from increased production capacity in future years.

TPI Composites Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TPI Composites's revenue will grow by 7.8% annually over the next 3 years.
• Analysts are not forecasting that TPI Composites will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate TPI Composites's profit margin will increase from -15.3% to the average US Electrical industry of 10.2% in 3 years.
• If TPI Composites's profit margin were to converge on the industry average, you could expect earnings to reach $171.0 million (and earnings per share of $3.29) by about August 2028, up from $-204.6 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 1.1x on those 2028 earnings, up from -0.1x today. This future PE is lower than the current PE for the US Electrical industry at 33.0x.
• Analysts expect the number of shares outstanding to grow by 2.47% 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.

TPI Composites Future Earnings Per Share Growth

Risks

• Regulatory uncertainty in the U.S. and EU, including potential tariffs and changes to existing regulations, could impact TPI’s revenue and profitability due to increased costs and market unpredictability.
  
• The underutilization of facilities in Turkey and India, driven by lower demand, poses a risk to EBITDA margins as these operations could incur fixed costs without sufficient revenue.
  
• Elevated interest rates and inflation might impact broader economic conditions, affecting net margins by increasing the cost of capital and operational expenses.
  
• Commodity and logistics challenges experienced in 2024 hint at potential supply chain disruptions, which could impact revenue and lead to increased costs.
  
• The presence of hyperinflation in Turkey and competition from Chinese manufacturers in the EU market could compress earnings by driving up labor costs and market prices.

Valuation

• The analysts have a consensus price target of $2.55 for TPI Composites 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 $3.5, and the most bearish reporting a price target of just $1.15.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $171.0 million, and it would be trading on a PE ratio of 1.1x, assuming you use a discount rate of 12.3%.
• Given the current share price of $0.3, the analyst price target of $2.55 is 88.4% 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.