Acquisition From Carr's Group Will Expand International Presence In Nuclear Sector

Key Takeaways

• The acquisition of Carr's Engineering division and focus on nuclear safety seek to broaden Cadre's market and boost international revenue.
  
• The upsized credit facilities and focus on innovation in safety equipment aim to support growth and enhance revenue through strategic acquisitions and product development.
  
• Cadre's growth is vulnerable due to reliance on M&A strategy, potential government spending cuts, tariffs, and macroeconomic uncertainties affecting revenue and earnings.

Catalysts

Manufactures and distributes safety equipment and other related products that provides protection to users in hazardous or life-threatening situations in the United States and internationally.

• The recent acquisition of the Engineering division from Carr's Group is expected to expand Cadre's international presence and grow its addressable market, particularly in the nuclear sector with new areas like automation, robotics, and nuclear medicine, potentially increasing future revenues.
  
• The company's ongoing mergers and acquisitions strategy highlights a robust pipeline of targets, particularly in the nuclear safety sector, suggesting sustained revenue growth and market expansion prospects.
  
• Cadre's upsized $590 million credit facilities with favorable terms enhance financial flexibility, supporting potential inorganic growth initiatives and increasing future earnings potential.
  
• The introduction of new products, such as improved ballistic armor and advanced duty gear, could capitalize on demand for innovative safety equipment, leading to higher revenue growth in the core market segments.
  
• Increased focus on public safety spending and geopolitical uncertainties are likely to drive demand for Cadre's safety equipment, potentially contributing to stable revenue growth and improved net margins as demand for high-quality, reliable products increases.

Cadre Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cadre Holdings's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 9.5% in 3 years time.
• Analysts expect earnings to reach $64.8 million (and earnings per share of $1.54) by about May 2028, up from $36.1 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 31.4x on those 2028 earnings, down from 33.0x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 31.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.52%, as per the Simply Wall St company report.

Cadre Holdings Future Earnings Per Share Growth

Risks

• Potential government spending cuts or delays could disrupt the rhythm of procurement processes for Cadre, negatively impacting revenue and earnings.
  
• Tariffs, particularly on imports from Mexico and Canada, could result in significant costs, potentially affecting Cadre's net margins if mitigation strategies do not fully offset the impact.
  
• Macroeconomic uncertainties in 2025, such as geopolitical tensions and changes in U.S. government focus, may lead to revenue fluctuations particularly in law enforcement and military product demand.
  
• Despite strategic acquisitions, integration challenges or failure to achieve anticipated synergies could adversely affect Cadre's financial performance, impacting net margins and earnings.
  
• The company's heavy reliance on its M&A strategy to drive growth poses execution risks; any failure to close deals or poorly evaluated acquisitions could undermine Cadre's financial flexibility and growth prospects, impacting overall earnings.

Valuation

• The analysts have a consensus price target of $42.0 for Cadre Holdings 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 $48.0, and the most bearish reporting a price target of just $36.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $680.8 million, earnings will come to $64.8 million, and it would be trading on a PE ratio of 31.4x, assuming you use a discount rate of 6.5%.
• Given the current share price of $29.32, the analyst price target of $42.0 is 30.2% 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.