Securing Significant Projects In MENA Region Will Fuel Future International Expansion

Key Takeaways

• Robust growth in international irrigation, particularly in the MENA region, highlights potential for continued expansion and increased revenue.
  
• Strategic shifts and operational efficiencies aim to capture more projects early, enhance profitability, and boost long-term revenue streams.
  
• Weaker North American market conditions and competitive international projects may reduce revenue and profitability, with volatility affecting earnings stability despite operational efficiencies.

Catalysts

Provides water management and road infrastructure products and services in the United States and internationally.

• The international irrigation business demonstrated robust revenue growth, particularly in the MENA region due to additional sales volume, indicating potential for continued expansion and increased revenue as the company completes large projects and pursues new ones in the region.
  
• The company has secured a $20+ million contract for a large Road Zipper system project, expected to complete in the second quarter, which is likely to boost revenue and earnings significantly once fully delivered.
  
• Lindsay's strategic shift to a shift-left approach in infrastructure projects could result in capturing more projects earlier in the decision-making process, improving revenue visibility, and potentially increasing future revenues and margins.
  
• The acquisition of a minority interest in Pessl Instruments enables Lindsay to enhance their technology platforms and grow annual recurring revenue by leveraging Pessl's global installed base, positively impacting long-term revenue and earnings streams.
  
• The company's operational efficiencies and cost management efforts, particularly in infrastructure manufacturing processes, are driving margin expansion and are expected to continue bolstering profitability, thereby enhancing net margins and overall earnings.

Lindsay Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lindsay's revenue will grow by 4.9% annually over the next 3 years.
• Analysts are assuming Lindsay's profit margins will remain the same at 11.2% over the next 3 years.
• Analysts expect earnings to reach $79.2 million (and earnings per share of $7.27) by about January 2028, up from $68.4 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 20.4x on those 2028 earnings, up from 19.0x today. This future PE is lower than the current PE for the US Machinery industry at 23.0x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

Lindsay Future Earnings Per Share Growth

Risks

• Weaker market conditions in North America due to tempered net farm income, driven by low commodity prices and high input costs, may negatively impact revenue and demand for irrigation equipment.
  
• International projects, while demonstrating growth in certain regions, are highly competitive and project timing is difficult to predict, posing risks to consistent revenue streams.
  
• Lower revenue in Brazil, associated with market activity and pressured grower profitability due to low commodity prices, may negatively impact overall revenue and earnings from international irrigation sales.
  
• Slightly lower average selling prices and a lower operating margin in North American irrigation due to regional mix and increased sales of smaller systems may reduce net margin and profitability.
  
• Infrastructure segment revenues decreased by 9% due to the timing of Road Zipper System lease revenue and lower sales, creating volatility that may affect earnings stability despite improved margins from operational efficiencies.

Valuation

• The analysts have a consensus price target of $132.0 for Lindsay 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 2028, revenues will be $705.6 million, earnings will come to $79.2 million, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $119.79, the analyst's price target of $132.0 is 9.3% 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.