Warehouse Automation And Energy Innovations Propel Future Growth Amidst Market Shifts

Key Takeaways

• Recovery in Warehouse Automation and growth in SGK's e-commerce platform are poised to significantly boost Matthews International's revenue and net margins.
  
• New industrial technologies and cost reduction efforts could enhance revenue potential and improve overall earnings.
  
• Economic and legal challenges, slow industrial demand, and financial liabilities threaten Matthews International's revenue growth, margins, and investor confidence.

Catalysts

Provides brand solutions, memorialization products, and industrial technologies worldwide.

• Matthews International is expected to benefit from a recovery in the Warehouse Automation market, with increased quoting and order volumes anticipated to drive significant revenue growth in fiscal 2025 and beyond.
  
• The SGK segment is positioned for growth with its transition to an e-commerce digital marketing platform, which distinguishes it from peers and is anticipated to increase revenues and organic business opportunities, potentially improving net margins.
  
• Matthews International's Industrial Technologies segment plans to launch the new printhead product, Axiom, in fiscal 2025, which along with the recent launch of a new line of lasers, is expected to contribute positively to revenue and earnings.
  
• The Energy Solutions business is on track to complete customer deliveries in fiscal 2025, and recent patent acquisition strengthens its technology offering, which could lead to enhanced revenue potential once the legal dispute is resolved.
  
• The company’s cost reduction program aims to achieve annual savings of up to $50 million, expected to improve net margins and overall earnings in the coming fiscal years.

Matthews International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Matthews International's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.3% today to 2.6% in 3 years time.
• Analysts expect earnings to reach $47.6 million (and earnings per share of $1.51) by about November 2027, up from $-59.7 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 30.4x on those 2027 earnings, up from -15.6x today. This future PE is lower than the current PE for the US Commercial Services industry at 33.1x.
• Analysts expect the number of shares outstanding to grow by 1.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

Matthews International Future Earnings Per Share Growth

Risks

• Economic conditions and legal events have posed challenges for several business units, which could continue to affect overall revenue and profit margins negatively.
  
• The Industrial Technologies segment has experienced slow shipments and installations, as well as soft demand, which may lead to lower revenue growth and profit margins unless expected improvements occur in fiscal 2025.
  
• Tesla's legal dispute with Matthews International over technology rights might result in financial liabilities or limit opportunities for the company's Energy Solutions business, impacting net earnings negatively.
  
• There were significant year-over-year declines in revenue and adjusted EBITDA, attributed to lower sales volumes and increased labor and material costs, potentially indicating a trend that might continue to affect net margins.
  
• The company recorded a net loss for the fiscal quarter due to asset write-downs and goodwill impairment charges, indicating potential financial instability or misvaluation that could impact overall earnings and investor confidence.

Valuation

• The analysts have a consensus price target of $37.0 for Matthews International 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 2027, revenues will be $1.8 billion, earnings will come to $47.6 million, and it would be trading on a PE ratio of 30.4x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $30.32, the analyst's price target of $37.0 is 18.1% 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.