Sealing Technologies Will Leverage Applied Engineering For Market Leadership

Key Takeaways

• Strategic acquisitions and investments in Sealing Technologies aim to sustain top-line growth and maintain high EBITDA margins.
  
• Portfolio optimization and new capital strategies boost revenue, profitability, and returns, supporting Enpro's ongoing transformation and expansion efforts.
  
• Weak semiconductor demand and declining vehicle OEM sales threaten revenue, while market challenges and investments may pressure profitability and net margins.

Catalysts

An industrial technology company, design, develops, manufactures, and markets proprietary, value-added products and solutions to safeguard critical environments in the United States, Europe, Asia Pacific, and internationally.

• Enpro's Sealing Technologies segment is positioned for above-market growth through leveraging applied engineering capabilities and specification positions, potentially leading to increased margins and profitability.
  
• The completion of Enpro's portfolio optimization and transformation sets the stage for Enpro 3.0, expected to drive higher revenue growth, best-in-class profitability, and strong returns on invested capital.
  
• Targeted investments and strategic acquisitions in the Sealing Technologies segment are expected to drive mid-single-digit top-line growth, while maintaining superior adjusted segment EBITDA margins.
  
• Long-term growth opportunities in Advanced Surface Technologies, particularly serving leading-edge applications, are anticipated to lead to high single-digit revenue growth and expanded margins, improving overall financial health.
  
• The company's capital investment strategy, including significant growth investments, is aimed at driving future revenue growth and enhancing profitability, underscoring Enpro's commitment to strategic expansion.

Enpro Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enpro's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 11.8% in 3 years time.
• Analysts expect earnings to reach $141.8 million (and earnings per share of $7.03) by about April 2028, up from $72.9 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 39.1x on those 2028 earnings, down from 43.8x today. This future PE is greater than the current PE for the US Machinery industry at 21.3x.
• Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.54%, as per the Simply Wall St company report.

Enpro Future Earnings Per Share Growth

Risks

• Persistent weakness in semiconductor capital equipment demand presents a risk to revenue growth, especially for the AST segment, which continues to face choppy market conditions and uncertainty in recovery timelines.
  
• The sharp decline in commercial vehicle OEM sales negatively impacts revenues and could result in further pressure if the market does not recover as expected.
  
• Slower sales in wafer fab equipment due to continued market challenges may hinder AST's ability to achieve projected high single-digit revenue growth, potentially affecting net margins and earnings.
  
• Increased investments in growth opportunities, such as the Arizona facility, may weigh on short-term profitability if returns do not materialize as anticipated, affecting the company's earnings.
  
• Potential tariff impacts, although seemingly not material in the short term, could pose risks to cost structures and net margins if geopolitical tensions increase, requiring pricing adjustments to maintain profitability.

Valuation

• The analysts have a consensus price target of $212.333 for Enpro 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 $232.0, and the most bearish reporting a price target of just $190.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $141.8 million, and it would be trading on a PE ratio of 39.1x, assuming you use a discount rate of 7.5%.
• Given the current share price of $151.86, the analyst price target of $212.33 is 28.5% 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.