Acquisition Of Amran/Narayan Group Will Expand Reach Into High-Growth Electrical Markets

Key Takeaways

• The acquisition of Amran/Narayan Group is a major revenue growth catalyst, leveraging global demand in the electrical grid sector.
  
• Strategic focus on high-demand markets and new product launches is expected to enhance revenue streams and improve financial performance.
  
• Increased net debt from recent acquisitions could strain financial flexibility and impact future earnings, particularly amidst declining revenues in key segments.

Catalysts

Together with subsidiaries, engages in the manufacture and sale of various products and services for commercial and industrial markets in the United States and internationally.

• The acquisition of the Amran/Narayan Group is a large catalyst, expected to provide significant revenue growth due to its strong performance and potential for double-digit growth driven by global demand in the electrical grid sector. This should impact revenue growth positively.
  
• Increasing sales in fast-growth markets, like the electrical grid, commercialization of space, and defense applications, suggest strong demand and expansion potential. This could boost revenues and margins as these sectors often command higher prices.
  
• The successful integration of the Amran/Narayan Group and its contribution to a 20% growth in sales suggest efficient operations, which can lead to improved net margins due to economies of scale and higher price realization.
  
• Standex International is on track to release over a dozen new products this fiscal year, contributing to anticipated incremental growth. These new product launches are expected to enhance revenue streams and positively impact operating margins through innovation.
  
• By fiscal 2028, the expectation of fast-growth market sales representing over 30% of total sales points to strategic focus on high-demand areas, potentially leading to higher earnings and improved financial performance due to a favorable product mix.

Standex International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Standex International's revenue will grow by 15.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 18.6% in 3 years time.
• Analysts expect earnings to reach $205.9 million (and earnings per share of $16.94) by about March 2028, up from $54.7 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 16.1x on those 2028 earnings, down from 37.1x 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 grow by 0.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.77%, as per the Simply Wall St company report.

Standex International Future Earnings Per Share Growth

Risks

• Standex experienced an organic revenue decline of 8.2% in the second quarter of 2025, indicating potential challenges in sustaining revenue growth without acquisitions.
  
• The Engraving segment saw a significant revenue decline of 23% due to softness in automotive markets in North America and Europe, potentially affecting overall revenue and net margins.
  
• Capital expenditures increased year-on-year, reducing free cash flow from $19.5 million to $2.1 million, which could pressure cash reserves and financial flexibility.
  
• The company's net debt has increased significantly from $6.2 million to $413.2 million after the Amran/Narayan acquisition, raising concerns about increased interest expenses and potential impacts on net earnings.
  
• The market softness in display merchandising and hydraulics businesses led to decreased revenue in the Specialty Solutions segment, potentially impacting future earnings stability and revenue diversification.

Valuation

• The analysts have a consensus price target of $220.8 for Standex International 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 $250.0, and the most bearish reporting a price target of just $195.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $205.9 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 7.8%.
• Given the current share price of $170.51, the analyst price target of $220.8 is 22.8% 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.