Expansion Into TaaS And Kodiak Partnership Will Create New Revenue Streams And Stabilize Revenue

Key Takeaways

• Diversification and focus on technology services like TaaS and autonomous logistics aim to stabilize revenue and attract tech-focused customers.
  
• Strengthening supplier relationships and leadership changes target operational efficiency, enhancing margins and long-term financial performance.
  
• Ongoing legal challenges, market weakness, and external risks may pressure margins, while growth initiatives strain short-term earnings despite cautious optimism on demand.

Catalysts

Manufactures engineered solutions and services for transportation, logistics and infrastructure industry in the United States.

• Wabash is expanding its Parts and Services revenue streams through joint ventures and a digital integration platform. This diversification aims to stabilize the company's revenue by reducing dependency on cyclical business segments.
  
• The company is focusing on its Trailers as a Service (TaaS) offering, which includes a partnership with Kodiak for autonomous logistics. This initiative is expected to boost revenue growth by attracting technology-focused customers and creating new revenue streams from autonomous vehicle logistics.
  
• The strategic relationship with key suppliers and initiatives like Smart Crossroads with Purdue University aim to secure supply reliability and drive operational efficiencies. These improvements are anticipated to enhance net margins by reducing costs and optimizing operations.
  
• Expansion of the Preferred Partner Network (PPN) and parts distribution capabilities positions Wabash to increase aftermarket revenue, which typically carries higher margins than the sale of new equipment, thereby improving overall earnings.
  
• Leadership changes aimed at strengthening operational expertise and driving innovation are expected to support long-term financial performance improvements, including potential margin expansions through a continuous improvement mindset.

Wabash National Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wabash National's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -14.6% today to 7.8% in 3 years time.
• Analysts expect earnings to reach $186.6 million (and earnings per share of $4.61) by about March 2028, up from $-284.1 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 4.5x on those 2028 earnings, up from -1.7x today. This future PE is lower than the current PE for the US Machinery industry at 21.5x.
• Analysts expect the number of shares outstanding to decline by 5.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.07%, as per the Simply Wall St company report.

Wabash National Future Earnings Per Share Growth

Risks

• Wabash is facing ongoing legal challenges and elevated legal expenses due to a product liability verdict, which could impact profit margins and net earnings.
  
• The company reports freight market weakness impacting demand for dry vans, which could lead to volatility in revenue projections.
  
• Investments in growth initiatives, such as the Wabash Marketplace and Trailers as a Service, might initially strain margins and reduce short-term earnings before they fully materialize into profitable revenue streams.
  
• There is cautious optimism around customer demand and order inflows, with a significant reliance on future intra-year orders rather than traditional lump-sum orders, which could make revenue harder to predict.
  
• External risks, such as potential tariffs on Mexican imports, could affect cost structures and competitive positioning, impacting operating margins and overall financial performance.

Valuation

• The analysts have a consensus price target of $18.5 for Wabash National 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 $23.0, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.4 billion, earnings will come to $186.6 million, and it would be trading on a PE ratio of 4.5x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $11.64, the analyst price target of $18.5 is 37.1% 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.