Merger With Marel Will Improve Operational Efficiency And Create Synergies

Key Takeaways

• Strong revenue growth and margin expansion driven by recovery in key markets and beneficial restructuring efforts could boost future earnings.
  
• The Marel merger and shift to a subscription model enhance revenue stability, with strategic financing fostering lender confidence in future growth.
  
• The reliance on debt financing for the Marel merger and potential integration challenges may impact financial stability and net margins.

Catalysts

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

• JBT Marel is experiencing double-digit revenue growth and margin expansion, driven by the recovery in the global poultry market and strong demand in other sectors like pet food and pharma. This growth trajectory is likely to positively impact future revenue and earnings.
  
• The company’s robust pipeline and backlog conversion, along with restructuring and supply chain initiatives, have led to significant EBITDA improvement and cost savings. This is expected to continue benefiting net margins and earnings.
  
• JBT’s Automated Guided Vehicle (AGV) business has seen impressive growth, with a shift to a subscription model that increases recurring revenue. This transition is anticipated to enhance future revenue and improve long-term earnings stability.
  
• The merger with Marel is expected to create synergies through complementary portfolios, driving operational efficiency and optimizing the go-to-market strategy, which should improve future revenue and net margins.
  
• JBT’s strategic financing structure for the Marel merger and commitment to reducing leverage are seen favorably by lenders, indicating confidence in future earnings growth through financial and operational improvement.

JBT Marel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JBT Marel's revenue will grow by 13.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 13.8% in 3 years time.
• Analysts expect earnings to reach $341.3 million (and earnings per share of $5.27) by about February 2028, up from $144.2 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 24.4x on those 2028 earnings, down from 45.9x today. This future PE is greater than the current PE for the US Machinery industry at 23.0x.
• Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

JBT Marel Future Earnings Per Share Growth

Risks

• The impending $30 million in noncash pretax charges related to settling pension plan obligations could negatively impact GAAP earnings in the fourth quarter, potentially affecting investor confidence and financial stability.
  
• The anticipated $145 million noncash pretax charges in the first quarter of 2025 regarding pension obligations settlements may further reduce reported earnings despite the plan’s fully funded status.
  
• The company's reliance on debt financing to fund the Marel merger, including a $900 million Term Loan B and expanded credit facilities, could increase leverage and influence net margins if not managed effectively.
  
• Integration risks in merging with Marel may lead to operational challenges and affect expected synergies or cost reductions, potentially impacting net margins and long-term profitability.
  
• Geographic and market-specific order weaknesses, particularly in certain CPG areas such as beverages, could hinder consistent revenue growth and earnings diversification despite current order gains.

Valuation

• The analysts have a consensus price target of $130.833 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 $147.0, 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 $2.5 billion, earnings will come to $341.3 million, and it would be trading on a PE ratio of 24.4x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $127.53, the analyst price target of $130.83 is 2.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.