Decarbonization And Electrification Will Intensify Graphite Electrode Demand

Key Takeaways

• Rapid expansion in market share and cost leadership positions GrafTech for significant revenue and margin gains as green steel adoption accelerates.
  
• Strategic integration and policy tailwinds make GrafTech a preferred supplier, opening opportunities for lucrative public-private partnerships and new revenue streams.
  
• Global oversupply, subdued steel demand, high customer concentration, unproven new markets, and ESG pressures threaten GrafTech's revenue growth, margins, and long-term market size.

Catalysts

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

• Analyst consensus expects strong sales volume growth and market share in the U.S., but this may be understated as GrafTech is aggressively gaining share far beyond regional steel demand growth and could see outsized revenue acceleration as new electric arc furnace steel capacity ramps in the U.S. and Western Europe.
  
• While analysts broadly anticipate margin improvement from price increases and favorable geographic mix, the company's unique ability to walk away from unprofitable business and its rapid cost reduction trajectory-already beating initial guidance-signals that net margins could expand dramatically as volumes recover and higher prices take hold.
  
• The accelerating global transition toward decarbonization and electrification, particularly via electric arc furnace steelmaking, is set to structurally and permanently increase demand for graphite electrodes, providing powerful top-line growth for GrafTech as this shift intensifies over the next decade.
  
• Legal and policy tailwinds-including U.S. and EU trade barriers, localization initiatives, and government-backed investment in critical mineral supply chains-are triggering the rapid formation of Western supply chains for steel and battery anodes, positioning GrafTech's integrated, North American-based production as the preferred supplier, which should drive higher, more stable long-term revenues and cash flows.
  
• GrafTech's unmatched vertical integration, technical expertise, and leadership in needle coke production make it a prime candidate for lucrative public-private partnerships and government contracts in the coming boom for Western battery and energy storage supply chains-potentially adding entirely new, high-margin revenue streams beyond core electrodes.

GrafTech International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on GrafTech International compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming GrafTech International's revenue will grow by 28.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -41.6% today to 9.5% in 3 years time.
• The bullish analysts expect earnings to reach $101.5 million (and earnings per share of $0.39) by about August 2028, up from $-211.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.3x on those 2028 earnings, up from -1.5x today. This future PE is lower than the current PE for the US Electrical industry at 28.0x.
• Analysts expect the number of shares outstanding to grow by 0.38% 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.

GrafTech International Future Earnings Per Share Growth

Risks

• Persistent global oversupply and aggressive low-priced graphite electrode exports from China are pressuring industry pricing and have led to double-digit year-over-year declines in GrafTech's average selling price, which threatens a sustained recovery in revenue and net margins.
  
• The flat or declining steel production outside of China, coupled with weak demand growth and underutilization of steelmaking capacity in key markets like Europe, could limit long-term volume growth for graphite electrodes, negatively impacting future revenues and earnings.
  
• GrafTech's hopes for significant demand upside from Western electric vehicle and battery supply chain development remain unproven, as management acknowledged that meaningful new anode and needle coke projects have yet to be announced; this raises the risk that costly investments may not yield near-term cash flow or margin improvement.
  
• The company's historic high customer concentration and strategic focus on the U.S. market exposes future revenue growth and earnings to risks from any downturns in the North American steel industry or from policy reversals around tariffs and trade protections.
  
• Ongoing environmental, social, and governance (ESG) pressures and the trend toward greener steelmaking-potentially moving away from carbon
• and electrode-intensive processes-may cause long-term secular declines in addressable market size for graphite electrodes, constraining future revenues and compressing net margins.

Valuation

• The assumed bullish price target for GrafTech International is $2.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of GrafTech International's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $101.5 million, and it would be trading on a PE ratio of 7.3x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $1.25, the bullish analyst price target of $2.0 is 37.5% 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.