Acquisition Of TMC Will Expand Services In Growing LTL Trucking Industry

Key Takeaways

• Newly introduced self-storage product lines and TMC acquisition position Janus for growth and market expansion, tapping into rising demand and new industry segments.
  
• Planned cost reductions and a strategic focus on R3 projects contribute to potential margin improvements, revenue stability, and increased shareholder value through strategic M&A.
  
• Macroeconomic challenges and decreased demand in various segments could impact Janus International Group's revenue and margins amid steel price fluctuations and interest rate concerns.

Catalysts

Janus International Group, Inc. manufacturers and supplies turn-key self-storage, commercial, and industrial building solutions in North America and internationally.

• Janus International Group's 2024 introduction of multiple new self-storage product lines, such as Noke Ion and NS Door series, positions the company for potential revenue growth as they meet increasing demand for advanced self-storage solutions.
  
• The acquisition of TMC is anticipated to contribute positively to Janus's results, potentially enhancing earnings by addressing a broader market segment with terminal maintenance services, particularly in the growing LTL trucking industry.
  
• Janus's plan to achieve $10 million to $12 million in annual pretax cost savings through structural cost reductions could improve net margins by streamlining the labor force, real estate holdings, and SG&A expenses.
  
• The projected shift in focus from New Construction to R3 projects in 2025, combined with stable margin profiles across both channels, may result in balanced revenue stability or growth while maintaining or slightly improving earnings margins.
  
• The company's continued strong balance sheet, with robust cash flow and adequate liquidity, allows Janus the flexibility to pursue strategic M&A and share repurchases, potentially enhancing future earnings per share and overall shareholder value.

Janus International Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Janus International Group's revenue will decrease by 0.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 10.4% in 3 years time.
• Analysts expect earnings to reach $102.8 million (and earnings per share of $0.79) by about April 2028, up from $70.4 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 16.5x on those 2028 earnings, up from 14.3x today. This future PE is lower than the current PE for the US Building industry at 20.4x.
• Analysts expect the number of shares outstanding to decline by 3.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.32%, as per the Simply Wall St company report.

Janus International Group Future Earnings Per Share Growth

Risks

• Macroeconomic concerns and sustained high interest rates have led to customers adjusting project timelines, which could impact Janus International Group’s future revenue and earnings.
  
• There is a decline in the Self-Storage segment, particularly in retail-to-storage conversion activity, potentially affecting revenue generation from this channel.
  
• The New Construction sales channel experienced a slowdown, with expectations for continued softness, impacting top-line growth in the near term.
  
• Declines in demand for carports and sheds in the commercial segment, despite the offset by a strategic acquisition, could negatively affect overall revenue.
  
• Fluctuations in steel prices and uncertainty regarding how these will be influenced by tariffs may impact costs and consequently net margins.

Valuation

• The analysts have a consensus price target of $10.5 for Janus International Group 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 $14.0, and the most bearish reporting a price target of just $8.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $987.9 million, earnings will come to $102.8 million, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 9.3%.
• Given the current share price of $7.16, the analyst price target of $10.5 is 31.8% 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.