US Markets And A 15% Price Increase Will Secure Success

Key Takeaways

• Strategic focus on higher-priced U.S. and Western European markets aims to boost revenue growth and profit margins.
  
• Cost reductions and strategic pricing adjustments are expected to enhance profitability and protect future earnings amidst global trade challenges.
  
• Weak demand, excess capacity, and global trade uncertainties are challenging GrafTech's pricing, revenue, profitability, and future growth.

Catalysts

Research, develops, manufactures, and sells graphite and carbon-based solutions worldwide.

• GrafTech International is strategically increasing its sales volume and market share, particularly targeting key regions like the U.S., which is noted for higher pricing. This is expected to drive revenue growth as the company projects low double-digit percentage sales volume growth for 2025.
  
• The company is actively shifting the geographic mix of its sales towards regions with better pricing dynamics, like the U.S. and Western Europe, away from less profitable markets. This is aimed at improving average selling prices and thus increasing net margins.
  
• GrafTech is implementing a 15% price increase on uncommitted volumes for 2025, aiming to restore more sustainable pricing levels. This would positively impact profitability and likely enhance future earnings as these higher prices are realized.
  
• The company is significantly reducing costs with a focus on improving its cost structure, having already achieved a 23% reduction in cash COGS per metric ton in 2024 and aiming for further mid-single-digit reductions in 2025. This cost management will enhance net margins.
  
• GrafTech's proactive measures in response to global trade policies, particularly U.S. tariffs, are designed to mitigate potential impacts and capture opportunities. These strategies should protect and even enhance future earnings by optimizing cost efficiencies and accessing fortified regional markets.

GrafTech International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GrafTech International's revenue will grow by 19.5% annually over the next 3 years.
• Analysts are not forecasting that GrafTech International will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate GrafTech International's profit margin will increase from -27.2% to the average US Electrical industry of 10.5% in 3 years.
• If GrafTech International's profit margin were to converge on the industry average, you could expect earnings to reach $91.7 million (and earnings per share of $0.35) by about May 2028, up from $-139.6 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 5.2x on those 2028 earnings, up from -1.1x today. This future PE is lower than the current PE for the US Electrical industry at 22.8x.
• Analysts expect the number of shares outstanding to grow by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

GrafTech International Future Earnings Per Share Growth

Risks

• Weak demand and excess capacity have led to challenging pricing dynamics in nearly all regions, which could impact revenue and profitability.
  
• The company’s profitability is currently under pressure due to unsustainable pricing levels for graphite electrodes, affecting net margins.
  
• GrafTech is experiencing a net loss and negative adjusted EBITDA, which indicates financial difficulties that could hinder the ability to improve earnings.
  
• The business faces heightened uncertainties due to global trade policies and tariffs, potentially leading to higher costs and affecting net margins.
  
• The high level of uncertainty around global industrial production and steel utilization presents risks to future revenue growth and earnings potential.

Valuation

• The analysts have a consensus price target of $1.325 for GrafTech 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 $2.0, and the most bearish reporting a price target of just $0.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $876.7 million, earnings will come to $91.7 million, and it would be trading on a PE ratio of 5.2x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $0.6, the analyst price target of $1.32 is 54.7% 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.