Integration With Marel Will Improve Client Solutions And Operational Efficiency

Key Takeaways

• Integration of JBT and Marel is projected to drive significant cost synergies and improve net margins through supply chain savings.
  
• Leveraging complementary technologies and a customer-centric strategy is anticipated to boost revenue growth, particularly in the poultry sector.
  
• Macroeconomic challenges, market declines, order growth uncertainties, integration risks, and foreign exchange impacts threaten Marel's revenue, cost structures, and profit margins.

Catalysts

Provides technology solutions to food and beverage industry in North America, Europe, the Middle East, Africa, the Asia Pacific, and Central and South America.

• The integration of JBT and Marel is expected to generate significant cost synergies estimated at an annual run rate of $150 million by the end of year three, with $35 million to $40 million anticipated in 2025. These synergies, primarily through supply chain savings, will positively impact net margins and earnings.
  
• The combined company aims to leverage their complementary technology portfolios to provide end-to-end solutions for clients, resulting in revenue synergies. This strategic cross-selling approach should drive revenue growth, especially in the poultry sector, where they expect strong incremental investments in 2025.
  
• The company has a customer-centric go-to-market strategy, which is anticipated to streamline their commercial presence and enhance customer value proposition. This strategy may lead to increased customer demand and revenue growth by better addressing evolving market needs.
  
• The adoption of digital technologies is set to optimize processing efficiencies for customers, increasing profitability. The integration of digital solutions is expected to contribute to higher recurring revenues due to enhanced service offerings.
  
• Operational improvements and restructuring at Marel are expected to drive EBITDA margin expansion from operational cost savings and process efficiencies, positively impacting earnings and margins.

JBT Marel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JBT Marel's revenue will grow by 32.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 9.2% in 3 years time.
• Analysts expect earnings to reach $367.0 million (and earnings per share of $5.98) by about March 2028, up from $84.6 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 29.8x on those 2028 earnings, down from 76.9x today. This future PE is greater than the current PE for the US Machinery industry at 21.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.57%, as per the Simply Wall St company report.

JBT Marel Future Earnings Per Share Growth

Risks

• The company faces potential macroeconomic headwinds, including U.S. tariffs and retaliatory tariffs, as well as the prospect of higher inflation. These factors could negatively impact cost structures and revenue.
  
• While the poultry market remains strong, Marel experienced a decline in full-year revenue by 4.6% due to lower project revenues, which could continue if market conditions do not improve or if execution on new projects faces challenges, impacting overall revenue and earnings.
  
• Marel's order growth is dependent on certain end markets with uncertain fundamentals, such as fish and pork, which could present risks in sustaining revenue if these markets do not improve as anticipated.
  
• Despite significant efforts on integration, there's inherent execution risk in realizing the forecasted synergies of $35 million to $40 million in 2025, which, if not achieved, could impact expected cost savings and net margins.
  
• The company is facing foreign exchange rate risks, with a projected negative impact of approximately $75 million due to the strength of the U.S. dollar, which could adversely affect reported revenues and profits.

Valuation

• The analysts have a consensus price target of $139.333 for JBT Marel 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 $163.0, and the most bearish reporting a price target of just $85.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $367.0 million, and it would be trading on a PE ratio of 29.8x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $125.34, the analyst price target of $139.33 is 10.0% 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.