Innovation Fuels Growth Amid Operational Challenges And Industry Headwinds

Key Takeaways

• Strategic cost reductions and manufacturing optimization are likely to enhance margins and profitability over the next few years.
  
• New technology and scalable products could drive market share growth and revenue boost, supported by a substantial backlog.
  
• Supply chain issues and market challenges in key regions may lead to decreased revenues, higher costs, and reduced profitability for Hyster-Yale.

Catalysts

Through its subsidiaries, designs, engineers, manufactures, sells, and services a line of lift trucks, attachments, and aftermarket parts worldwide.

• The introduction of new advanced technology products and modular, scalable products is expected to drive market share gains, which could boost revenue.
  
• The company's $2.3 billion backlog provides a supportive foundation, maintaining production levels and aiding revenue stability until market improvements.
  
• Strategic cost reduction programs and manufacturing footprint optimization initiatives planned for the next 12 to 36 months are expected to improve margins and profitability.
  
• Plans to reduce working capital, particularly inventory levels, aim to enhance cash flow, improve liquidity, and support financial stability during periods of lower demand.
  
• Continued focus on maintaining competitively priced products with new model introductions and pricing discipline could help sustain or improve net margins.

Hyster-Yale Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hyster-Yale's revenue will decrease by -1.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.7% today to 2.8% in 3 years time.
• Analysts expect earnings to reach $113.9 million (and earnings per share of $6.27) by about November 2027, down from $157.2 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 14.4x on those 2027 earnings, up from 5.9x today. This future PE is lower than the current PE for the US Machinery industry at 24.6x.
• Analysts expect the number of shares outstanding to grow by 1.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

Hyster-Yale Future Earnings Per Share Growth

Risks

• Supply chain constraints and product introduction issues led to missed sales and manufacturing inefficiencies, increasing costs and impacting net margins and earnings.
  
• The global lift truck market is predicted to decrease, particularly in key regions like EMEA and the Americas, which could lead to lower revenues.
  
• A significant year-over-year drop in dollar-value factory bookings suggests potential revenue declines if market conditions do not improve.
  
• Operational inefficiencies related to unit volume declines and unfavorable pricing in EMEA and JAPIC could lead to reduced gross profits and operating margins.
  
• Variability in costs related to freight, material, and employee expenses, alongside potential restructuring charges, may adversely affect both net income and overall profitability.

Valuation

• The analysts have a consensus price target of $72.5 for Hyster-Yale based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.1 billion, earnings will come to $113.9 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $53.16, the analyst's price target of $72.5 is 26.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.