Alternative Proteins And Integration Setbacks Will Squeeze Margins

Key Takeaways

• Shifting consumer preferences, stricter regulations, and emerging technologies threaten traditional business lines, compress margins, and could erode long-term market share.
  
• Integration struggles and increasing customer bargaining power create risks to anticipated synergistic benefits, pricing power, and sustainable profitability.
  
• Secular demand, successful integration, growth in recurring revenue, market expansion, and improved financial resilience position JBT Marel for sustained profitability and lower earnings volatility.

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 rapid adoption of alternative proteins and plant-based diets globally threatens to limit future growth in traditional meat, poultry, and seafood processing, directly undermining JBT Marel's large installed base and causing medium
• to long-term revenue deceleration in its core segments.
  
• Accelerating sustainability pressures and tightening environmental regulations will force customers to upgrade or retrofit existing processing equipment at significant capital outlay, which may delay purchasing decisions and compress JBT Marel's operating margins due to higher compliance and equipment costs.
  
• Integration risks and ongoing execution challenges from the Marel acquisition could erode the anticipated synergy benefits, as the company has yet to fully standardize key areas like R&D and manufacturing strategy; failure to deliver synergy savings would dilute net margins and stall EPS growth.
  
• Industry consolidation among food processors is likely to increase customer bargaining power, causing sustained contraction in average equipment prices and undermining both revenue per contract and gross margin across JBT Marel's equipment portfolio.
  
• The risk of technological leapfrogging is rising as food processors look to adopt disruptive, next-generation automation or alternative production methods such as cellular agriculture, threatening obsolescence for JBT Marel's current solutions and exposing the company to long-term declines in market share and recurring revenue predictability.

JBT Marel Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on JBT Marel compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming JBT Marel's revenue will grow by 17.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -5.1% today to 11.2% in 3 years time.
• The bearish analysts expect earnings to reach $491.0 million (and earnings per share of $9.7) by about August 2028, up from $-138.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.5x on those 2028 earnings, up from -51.0x today. This future PE is lower than the current PE for the US Machinery industry at 23.3x.
• 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 8.61%, as per the Simply Wall St company report.

JBT Marel Future Earnings Per Share Growth

Risks

• Robust secular drivers such as global population growth, rising protein consumption, and an increasing focus on food safety and automation are likely to support ongoing demand for JBT Marel's solutions, which would help bolster long-term revenues and earnings.
  
• The company's successful execution of integration and synergy capture from the Marel acquisition is already driving strong margin expansion, with management expecting annualized run-rate synergy savings of $80 million to $90 million exiting 2025, indicating potential for higher net margins and EPS.
  
• JBT Marel's transition to higher-margin recurring revenue streams, including parts, services, and digital/software solutions, is already contributing to improved profitability, indicating sustainability of earnings and reduced volatility in future cash flows.
  
• Expansion into emerging markets, cross-selling of the expanded product portfolio, and a deepened customer value proposition through integrated, full-line solutions are increasing the company's total addressable market and underpinning revenue growth potential.
  
• Effective tariff mitigation, strong cash flow generation, and rapid deleveraging of the balance sheet have improved liquidity and financial resilience, making it more likely the company can withstand macro or industry challenges, thereby supporting stable or improving future earnings and share price.

Valuation

• The assumed bearish price target for JBT Marel is $88.23, which represents two standard deviations below the consensus price target of $149.42. This valuation is based on what can be assumed as the expectations of JBT Marel's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $177.5, and the most bearish reporting a price target of just $85.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.4 billion, earnings will come to $491.0 million, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $135.74, the bearish analyst price target of $88.23 is 53.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.