New Military Contracts And CARB-Compliant Chassis Will Expand Market Reach By 2025

Key Takeaways

• Stabilizing chassis deliveries and CARB-compliant designs aim to reduce volatility and drive revenue growth by improving supply chain and tapping regulated markets.
  
• Military contracts and product launches enhance long-term growth potential by diversifying revenue sources and increasing market share through innovation.
  
• Volatile chassis shipments and regulatory uncertainties may impact revenue stability, while delayed compliance and military contracts might defer financial benefits to late 2025 or beyond.

Catalysts

Manufactures and sells towing and recovery equipment.

• Stabilization of chassis deliveries by the second half of 2025 is expected to reduce revenue volatility and improve gross margins by normalizing the supply chain and inventory flow.
  
• Efforts to design and produce CARB-compliant chassis are projected to unlock demand and increase sales in states with restrictive emissions regulations, thus positively affecting revenue growth starting in late 2025.
  
• Upcoming military contracts, notably with Rheinmetall Canada, suggest potential revenue gains and diversification into military vehicle markets, enhancing long-term earnings growth.
  
• Planned launches of new products across all categories are anticipated to drive future revenue growth and market share through product innovation.
  
• In-sourcing and diversification of the supply chain contribute to operational efficiency, which can stabilize costs and potentially enhance net margins by reducing reliance on volatile tariff-exposed suppliers.

Miller Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Miller Industries's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 5.3% in 3 years time.
• Analysts expect earnings to reach $75.6 million (and earnings per share of $6.49) by about March 2028, up from $63.5 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 12.7x on those 2028 earnings, up from 8.0x today. This future PE is lower than the current PE for the US Machinery industry at 21.4x.
• Analysts expect the number of shares outstanding to decline by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.43%, as per the Simply Wall St company report.

Miller Industries Future Earnings Per Share Growth

Risks

• The volatility in chassis shipments and the resulting fluctuations in inventory levels present challenges for predicting revenues and managing working capital, potentially impacting revenue stability and cash flow generation.
  
• The rising costs of equipment ownership, including increased insurance premiums and interest rates, could pressure end-market demand, negatively affecting sales and revenue.
  
• Ongoing trade tariffs and regulatory uncertainties, especially related to the Advanced Clean Truck regulation, present risks that could affect supply chain reliability and disrupt sales in significant markets, impacting overall revenue and earnings.
  
• The company's high inventory levels and reliance on a synchronized distributor network could pose risks if demand forecasts are inaccurate or if market conditions change unexpectedly, potentially affecting revenue and net margins.
  
• The anticipated timing for CARB-compliant chassis production and military contract fulfillment suggests revenue and earnings improvements may not materialize until the latter half of 2025 or even 2026, which could delay expected financial benefits.

Valuation

• The analysts have a consensus price target of $70.5 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 2028, revenues will be $1.4 billion, earnings will come to $75.6 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 7.4%.
• Given the current share price of $44.49, the analyst price target of $70.5 is 36.9% 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.