Supply Chain Stabilization And International Expansion Could Shape Future Earnings

Key Takeaways

• Anticipated stabilization in supply chains and distributor sentiment may enhance future revenue and earnings through historical backlog levels.
  
• Expansion into international and military markets, along with increased production capacity, could drive growth in sales and market share.
  
• Dependency on domestic markets and rising costs threaten Miller Industries' profitability amid production disruptions, product mix changes, and international demand volatility.

Catalysts

Manufactures and sells towing and recovery equipment.

• Miller Industries anticipates a return to historical backlog levels over the next 1 to 2 quarters due to stabilized supply chains and improved distributor sentiment, which may positively impact future revenue and earnings.
  
• The expansion into international markets and the military sector is expected to provide significant growth opportunities, potentially boosting future sales and revenue streams.
  
• The company is focused on expanding production capacity to meet future contractual agreements, which could drive increased revenue and market share.
  
• Continued efforts to convert accounts receivable into cash signal improved cash flow, potentially enhancing earnings and shareholder returns through buybacks and dividends.
  
• The normalization of the chassis market and production scheduling could stabilize and improve gross margins, potentially increasing overall profitability and net margins.

Miller Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Miller Industries's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.2% today to 5.4% in 3 years time.
• Analysts expect earnings to reach $85.8 million (and earnings per share of $7.53) by about December 2027, up from $69.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $70.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.2x on those 2027 earnings, up from 11.1x today. This future PE is lower than the current PE for the US Machinery industry at 22.7x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.91%, as per the Simply Wall St company report.

Miller Industries Future Earnings Per Share Growth

Risks

• Hurricane impacts, such as Hurricane Helen, led to production pauses and could continue to affect operations, potentially disrupting revenue streams and delaying invoicing which might impact quarterly earnings.
  
• The gross profit and margin have decreased year-over-year due to a shift in product mix, signaling potential pressure on profitability if the product demand does not align with higher-margin offerings.
  
• Despite strong order intake internationally, only 10% of sales come from international markets; dependency on domestic markets makes the company vulnerable if domestic demand falters or economic conditions worsen, affecting future revenue growth.
  
• The slow order entry and political uncertainties leading to postponed orders indicate possible volatility in demand, which can create fluctuations in future revenues and net income projections.
  
• Rising SG&A costs above the target level due to increasing compliance and regulations may pressure operating margins and reduce net profits if the company cannot offset these costs with higher revenue or efficiency gains.

Valuation

• The analysts have a consensus price target of $78.0 for Miller Industries 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 2027, revenues will be $1.6 billion, earnings will come to $85.8 million, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 6.9%.
• Given the current share price of $67.55, the analyst's price target of $78.0 is 13.4% 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.