Efficiency And Expansion Plans Seek To Improve Profitability Amid Market Challenges

Key Takeaways

• Focused production hubs and new products aim to lower costs and boost revenue, enhancing net margins and top-line growth.
  
• U.S. production expansion enhances operational efficiency, supports revenue growth, and improves cost-effectiveness.
  
• Rising costs, competitive pressure, and declines in traditional products pose challenges to Cimpress's revenue growth, profit margins, and customer acquisition efforts.

Catalysts

Provides various mass customization of printing and related products in North America, Europe, and internationally.

• The introduction of focused production hubs and new product introductions are expected to lower the cost of goods sold and increase revenue, positively impacting net margins and top-line growth.
  
• The launch of the Upload & Print business model in the U.S. is anticipated to expand Cimpress’ market reach and drive revenue growth, improving EBITDA and future cash flow.
  
• Strong growth from Vista’s highest value customers and the expansion into higher-growth product categories suggest a positive impact on revenue and potential improvement in net margins, as these areas carry higher profit potentials.
  
• Actions to improve performance, reduce operating expenses, and optimize pricing are expected to enhance profitability and efficiency, contributing to better EBITDA margins.
  
• Cimpress’ expansion of production capabilities in the U.S. to facilitate cross-brand fulfillment is anticipated to improve operational efficiency and support revenue growth through better product availability and cost reductions.

Cimpress Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cimpress's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.8% today to 3.3% in 3 years time.
• Analysts expect earnings to reach $123.2 million (and earnings per share of $4.54) by about April 2028, down from $159.5 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 23.3x on those 2028 earnings, up from 6.6x today. This future PE is lower than the current PE for the US Commercial Services industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 2.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.12%, as per the Simply Wall St company report.

Cimpress Future Earnings Per Share Growth

Risks

• Cimpress experienced weaker-than-expected Q2 results, primarily due to underperformance in the U.S. market and challenges with key products like business and holiday cards; this could continue to impact revenue and earnings growth.
  
• Rising costs of performance advertising and increased competitive pressure in the U.S., especially during the holiday season, indicate potential pressure on net margins and customer acquisition efforts.
  
• Secular declines in traditional product categories like business cards may signal challenges in sustaining long-term revenue growth if new product categories do not offset these declines.
  
• The company's increased advertising spend amid rising advertising costs may not effectively yield the expected growth in new customer acquisition, potentially impacting future profit margins.
  
• Potential changes in trade policies, such as tariffs on Canadian goods or repeal of the de minimis exemption, could adversely affect Cimpress's cost structure and net margins due to potential shifts in manufacturing and increased expenses.

Valuation

• The analysts have a consensus price target of $91.0 for Cimpress based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $123.2 million, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 11.1%.
• Given the current share price of $42.68, the analyst price target of $91.0 is 53.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.