Engineered Composites And 3D Woven Technology Will Expand Future Opportunities

Key Takeaways

• Strategic focus on Engineered Composites and Advanced Air Mobility indicates potential revenue and margin growth due to operational progress and proprietary technology.
  
• Long-term defense contracts and share repurchase program aim to enhance earnings, benefiting future revenue streams and earnings per share.
  
• Revenue challenges in key segments, coupled with rising tax costs and production uncertainties, could pressure Albany International's earnings and profit margins.

Catalysts

Engages in the machine clothing and engineered composites businesses.

• Albany International anticipates higher revenues and improved profitability over the next several years, driven by strong fundamentals and ongoing operational progress, particularly within the Engineered Composites segment. This will likely impact both revenue and net margins positively.
  
• Despite some short-term revenue challenges from the integration of Heimbach, the consolidation and discontinuation of unprofitable product lines are expected to enhance bottom-line performance, thereby potentially improving net margins.
  
• The company's strategic focus on Advanced Air Mobility and their proprietary 3D woven technology indicates anticipated growth, which could directly enhance future revenues.
  
• The significant and profitable CH-53K program and agreements for long-term contracts, including hypersonics and defense programs, are positioned as a solid future revenue stream with expectations of medium
• and long-term growth, positively impacting earnings.
  
• The ongoing share repurchase program, coupled with strong cash generation, suggests a focus on improving earnings per share (EPS) through reduced share count and returning value to shareholders.

Albany International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Albany International's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 11.8% in 3 years time.
• Analysts expect earnings to reach $159.3 million (and earnings per share of $5.07) by about March 2028, up from $87.6 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 19.3x on those 2028 earnings, down from 25.7x today. This future PE is lower than the current PE for the US Machinery industry at 22.1x.
• Analysts expect the number of shares outstanding to decline by 0.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

Albany International Future Earnings Per Share Growth

Risks

• The Machine Clothing revenues in the fourth quarter were slightly below the same quarter last year due to strong comparative period, impacting short-term revenue growth. This may indicate potential volatility in revenue for that segment.
  
• EAC (Estimate At Completion) adjustments at AEC had a negative impact on revenues in the fourth quarter, which can affect earnings if such adjustments continue.
  
• There is a cautious approach toward Boeing's production rates, indicating potential uncertainty and inventory challenges, which could impact LEAP revenues and overall earnings.
  
• AEC has experienced lower LEAP revenues and lower 787 volumes, which are key contributors to revenue. This continuing trend could negatively affect net margins if the situation does not improve.
  
• Increased tax costs expected in 2025 will raise the effective tax rate to 31% from the previous year’s 24.8%, which could reduce net earnings after taxes.

Valuation

• The analysts have a consensus price target of $82.5 for Albany International 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 $92.0, and the most bearish reporting a price target of just $70.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $159.3 million, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $72.95, the analyst price target of $82.5 is 11.6% 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.