Investments In New Technologies And Acquisitions Will Expand Opportunities In The Pool Market

Key Takeaways

• Investments in new technologies and acquisition strategies are bolstering revenue growth and market expansion through enhanced products and cross-selling opportunities.
  
• Operational improvements and strategic initiatives are expected to enhance efficiency, profit margins, and long-term financial performance through cost savings and increased productivity.
  
• Macroeconomic and interest rate challenges, supply chain risks, and increased SG&A expenses threaten Hayward Holdings' profitability despite improved cash flow and leverage.

Catalysts

Designs, manufactures, and markets a portfolio of pool equipment and associated automation systems in North America, Europe, and internationally.

• Hayward Holdings is investing in new technologies and innovative products, such as the microchannel temperature control unit and the OmniPro app, which are expected to drive revenue growth through increased adoption and differentiation in the pool market.
  
• The acquisition of ChlorKing is creating cross-selling opportunities and expanding Hayward's presence in the commercial pool market, which can positively impact revenue and margins due to an enhanced product offering and synergies from integration.
  
• The company is focusing on operational excellence and productivity gains, which are expected to contribute to margin improvement by driving efficiencies and cost savings in manufacturing and supply chain processes.
  
• Strategic initiatives like SKU rationalization and expanding their automation capabilities aim to improve working capital efficiency and profit margins, leading to better earnings and cash flow.
  
• Hayward is poised to benefit from potential recovery in non-discretionary aftermarket pool maintenance and possible rebounding new construction and remodel markets, which can bolster future sales growth and improve market penetration.

Hayward Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hayward Holdings's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.3% today to 15.4% in 3 years time.
• Analysts expect earnings to reach $190.6 million (and earnings per share of $0.86) by about March 2028, up from $118.7 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 24.3x on those 2028 earnings, down from 26.3x 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 grow by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.44%, as per the Simply Wall St company report.

Hayward Holdings Future Earnings Per Share Growth

Risks

• Despite strong Q4 results, Hayward Holdings faces macroeconomic challenges, such as interest rate pressures, which could affect its growth projections, impacting revenue.
  
• The company is observing pressure on new construction and discretionary remodeling activities due to elevated interest rates, which may result in lower-than-expected net sales growth.
  
• While Hayward continues to show improved cash flow and reduced leverage, any disruptions in its supply chain, particularly related to tariffs or challenges in sourcing, could impact gross margins and earnings.
  
• The European and Rest of World segment is under pressure with declining net sales and lower margins, which may affect the company's overall profitability if not improved.
  
• Investments in customer care, R&D, and strategic initiatives have increased SG&A expenses, and if these do not generate the expected returns, they could weigh on net margins and EBITDA.

Valuation

• The analysts have a consensus price target of $16.562 for Hayward 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 $18.0, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $190.6 million, and it would be trading on a PE ratio of 24.3x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $14.47, the analyst price target of $16.56 is 12.6% 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.