Our Energy Transition And Digital Irrigation Will Unlock New Markets

Key Takeaways

• Valmont capitalizes on global energy and infrastructure trends, enhancing revenue through capacity expansion and sector-focused investments.
  
• Strategic investments in agriculture and operational efficiency drive earnings growth, complemented by a substantial stock repurchase program enhancing EPS.
  
• Declining agricultural market, international exposure, tariff risks, and steel price volatility could pressure Valmont's revenue, margins, and long-term earnings.

Catalysts

Operates as a manufacturer of products and services for infrastructure and agriculture markets in the United States, Australia, Brazil, and internationally.

• Valmont is leveraging the global energy transition and infrastructure investments to capture long-term growth opportunities, positioning itself for increased demand and revenue enhancement in these sectors.
  
• The company is expanding its production capacity and optimizing its capabilities, particularly in the utility sector, with significant CapEx investments expected to enhance revenue growth as these new capacities ramp up.
  
• Valmont's focus on enhancing its Agriculture business, especially through high-margin aftermarket parts and digital irrigation tools, is expected to stimulate revenue growth as market conditions improve.
  
• The company's proactive efforts to mitigate tariff impacts and optimize its cost structure are set to enhance operating margins and contribute to earnings growth.
  
• The ongoing $700 million stock repurchase program is expected to drive significant earnings per share (EPS) growth by reducing the share count and returning value to shareholders.

Valmont Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Valmont Industries's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.6% today to 9.5% in 3 years time.
• Analysts expect earnings to reach $418.4 million (and earnings per share of $22.11) by about April 2028, up from $347.7 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 21.7x on those 2028 earnings, up from 16.1x today. This future PE is greater than the current PE for the US Construction industry at 21.3x.
• Analysts expect the number of shares outstanding to decline by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.42%, as per the Simply Wall St company report.

Valmont Industries Future Earnings Per Share Growth

Risks

• Declining North American irrigation market, driven by lower corn and soybean prices, may continue to pressure revenue and operating margins in the Agriculture segment.
  
• Exposure to international markets, particularly softness in Asia Pacific Lighting and Transportation sectors, could impact revenue growth and net income.
  
• Tariff risks, despite mitigation efforts, continue to present uncertainty and may affect net margins if not effectively managed.
  
• Volatility in steel prices and potential foreign exchange impacts could strain operating costs and pressure gross margins.
  
• Strategic exits from lower-return Solar projects and dependence on certain market recoveries may suppress revenue growth and impact long-term earnings.

Valuation

• The analysts have a consensus price target of $386.0 for Valmont Industries 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 $441.0, and the most bearish reporting a price target of just $343.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.4 billion, earnings will come to $418.4 million, and it would be trading on a PE ratio of 21.7x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $278.28, the analyst price target of $386.0 is 27.9% 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.