Escalating Protectionism And Decarbonization Will Jeopardize Traditional Steel Demand

Key Takeaways

• Rising trade barriers, material shifts, and environmental policies threaten Worthington's margins, product relevance, and expose its portfolio to sector-specific downturns.
  
• Competitive pressure from advanced materials and manufacturing innovation risks eroding market share and increasing capital requirements for modernization.
  
• Strategic innovation, operational improvements, successful acquisitions, and strong capital discipline position the company for margin growth, earnings stability, and expanding market share.

Catalysts

Operates as an industrial manufacturing company.

• Escalating global trade protectionism and accelerating de-globalization threaten to disrupt Worthington Enterprises' supply chains and inflate input costs, especially given the company's heavy reliance on steel and metal-intensive products. This could suppress margins and hinder international revenue expansion over time as the company is forced to absorb higher expenses or pass them on, risking volume declines.
  
• Structural moves toward net-zero emissions and tightening environmental regulations risk diminishing demand for core legacy products such as traditional metal components, storage tanks, and pressure vessels. As customer preferences and regulatory mandates shift, Worthington could face costly operational overhauls, product line obsolescence, and declining revenue from sectors most affected by decarbonization.
  
• The company's streamlined product portfolio following the Worthington Steel spin-off heightens vulnerability to a downturn in its remaining core end-markets, particularly automotive and commercial construction. As these cyclical sectors weaken or undergo transformation, revenue concentration could amplify earnings volatility and drive unforeseen net profits contraction.
  
• The rise of alternative lightweight materials in industrial and automotive applications-including composites and aluminum-poses a sustained threat to demand for Worthington's traditional steel-based products. This trend could impede top-line growth and erode market share as key customers migrate toward more advanced or sustainable substitutes.
  
• Automation and digitalization are accelerating across the manufacturing sector, increasing the risk that Worthington's existing production methods and operational practices become outdated. The company will likely require significant ongoing capital expenditures to keep pace, putting pressure on free cash flow and potentially compressing net margins if the pace of technological change exceeds the speed of adaptation.

Worthington Enterprises Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Worthington Enterprises compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Worthington Enterprises's revenue will grow by 7.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 8.3% today to 15.0% in 3 years time.
• The bearish analysts expect earnings to reach $218.2 million (and earnings per share of $4.47) by about September 2028, up from $96.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, down from 33.5x today. This future PE is lower than the current PE for the US Machinery industry at 24.7x.
• Analysts expect the number of shares outstanding to decline by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.16%, as per the Simply Wall St company report.

Worthington Enterprises Future Earnings Per Share Growth

Risks

• Worthington Enterprises continues to experience strong year-over-year and sequential growth in revenue, gross margin, and adjusted EBITDA, underpinned by its strategic focus on innovation, operational transformation, and targeted M&A-indicating that operational improvements could lead to sustained or expanding net profit margins.
  
• The company is actively investing in automation, facility modernization, and efficiency initiatives across key product lines, with management targeting gross margins above 30 percent and SG&A below 20 percent of sales, which, if achieved, could drive significant improvements in both gross and net margins over the long term.
  
• Successful execution of strategic acquisitions like Ragasco and Elgen Manufacturing-combined with identified revenue and cost synergies-has the potential to accelerate top-line growth and strengthen competitive positioning, which can support earnings growth and cash flow generation over future periods.
  
• Worthington's strong balance sheet, high free cash flow conversion (103 percent relative to adjusted net earnings), and low leverage enable ongoing capital allocation toward both shareholder returns (through dividends and buybacks) and additional growth initiatives, which could protect or enhance earnings per share.
  
• The portfolio's focus on domestic manufacturing and responsive adaptation to tariff changes offers a competitive advantage in supply chain reliability, enabling the company to capitalize on shifting customer demand and potentially increase market share, thereby supporting higher revenues even in uncertain trade environments.

Valuation

• The assumed bearish price target for Worthington Enterprises is $50.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Worthington Enterprises's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $81.0, and the most bearish reporting a price target of just $50.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $218.2 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 8.2%.
• Given the current share price of $64.64, the bearish analyst price target of $50.0 is 29.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.