Expansion Into European Home Energy Management Will Open New Opportunities

Key Takeaways

• Expanding integrated systems and lifecycle solutions promises differentiation and revenue growth, boosting net margins and customer value.
  
• Operational enhancements and share repurchases are set to improve earnings and enhance EPS growth through margin expansion.
  
• Economic and political uncertainty, competition, and market reliance pose risks to Carrier's revenue growth, margins, and market share across Europe, China, and Mexico.

Catalysts

Provides intelligent climate and energy solutions in the United States, Europe, the Asia Pacific, and internationally.

• Carrier's focus on expanding their addressable market through digitally enabled lifecycle solutions and integrated systems is expected to drive revenue growth. Increasing aftermarket sales contributes to higher margins and recurring revenues.
  
• The transition from selling individual cold chain products to complete integrated systems provides an opportunity for differentiation and increased revenue, positively impacting net margins through enhanced customer value.
  
• The strategic focus on accelerating growth through investments in European home energy management and introducing similar offerings in the U.S. should expand the revenue base and enhance earnings.
  
• Carrier's operational enhancements, including capacity additions and driving productivity, are likely to support margin expansion and contribute to improved earnings performance.
  
• The planned share repurchases of around $3 billion in 2025 are expected to reduce the share count, effectively enhancing EPS growth.

Carrier Global Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Carrier Global's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 10.7% in 3 years time.
• Analysts expect earnings to reach $2.7 billion (and earnings per share of $3.29) by about March 2028, up from $1.1 billion 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 28.5x on those 2028 earnings, down from 52.5x today. This future PE is greater than the current PE for the US Building industry at 19.2x.
• Analysts expect the number of shares outstanding to decline by 3.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.18%, as per the Simply Wall St company report.

Carrier Global Future Earnings Per Share Growth

Risks

• Economic and political uncertainty in Europe could lead to flat or declining market volume, impacting revenue growth potential for Carrier's European operations.
  
• Carrier's reliance on new product introductions and market transitions, such as the refrigerant transition and integrated systems, carries execution risk which could affect future earnings and margins if not successfully managed.
  
• The potential implementation of tariffs, particularly with Mexico, poses a risk to production costs and could pressure net margins if not effectively mitigated through price adjustments or operational changes.
  
• Weakness in residential and light commercial HVAC markets in key regions such as Europe and China could negatively impact overall revenue growth and operating margins.
  
• Intensified competition, particularly in the residential HVAC market, could erode pricing power and market share, potentially impacting revenue and net earnings.

Valuation

• The analysts have a consensus price target of $79.463 for Carrier Global 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 $95.0, and the most bearish reporting a price target of just $53.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $25.4 billion, earnings will come to $2.7 billion, and it would be trading on a PE ratio of 28.5x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $67.39, the analyst price target of $79.46 is 15.2% 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.