US Coast Guard Contract And New Products Like Cairns 1836 Helmet Will Strengthen Market Position

Key Takeaways

• Execution of major contracts and new product introductions signal potential revenue growth from innovative offerings and long-term agreements.
  
• Strategic initiatives like the MSA Business System and focused capital allocation are expected to enhance net margins and boost earnings leverage.
  
• MSA Safety's revenue and margin growth face challenges from market weakness, currency headwinds, inflation, and deferred orders due to regulatory changes.

Catalysts

Develops, manufactures, and supplies safety products and technology solutions that protect people and facility infrastructures worldwide.

• The award of a 10-year $33 million breathing apparatus contract with the U.S. Coast Guard and the large MSA+ connected portables order from a major energy customer suggest future revenue growth as these contracts are executed.
  
• Introduction of new products such as the Cairns 1836 Fire Helmet and next-generation G1 SCBA, which could drive increased demand and higher revenues due to their innovative features.
  
• Expected growth in MSA+ Connected Worker Platform with customer acquisitions and conversions indicating potential for increased recurring revenue streams, which may lead to improved net margins.
  
• Continued application of the MSA Business System to drive operational excellence initiatives, likely to enhance net margins through improved productivity and cost management.
  
• Focused capital allocation including share buybacks and strategic organic growth investments, potentially boosting EPS through reduced share count and enhanced earnings leverage.

MSA Safety Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MSA Safety's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.8% today to 17.9% in 3 years time.
• Analysts expect earnings to reach $354.4 million (and earnings per share of $9.08) by about March 2028, up from $284.9 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 25.1x on those 2028 earnings, up from 21.8x today. This future PE is lower than the current PE for the US Commercial Services industry at 29.8x.
• Analysts expect the number of shares outstanding to decline by 0.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.95%, as per the Simply Wall St company report.

MSA Safety Future Earnings Per Share Growth

Risks

• Sales growth was lower than expectations due to industrial market weakness and softer U.S. fire service demand, which could impact MSA Safety's future revenue growth.
  
• Currency translation posed a 1% headwind to sales, potentially affecting revenue and net margins.
  
• Inflation and large project mix contributed to a contraction in gross margins, which could pressure net margins and earnings.
  
• The company faces challenging comparisons in 2025 due to prior large orders, such as from the U.S. Air Force, which could result in temporary declines in revenue growth.
  
• The NFPA standard change for Fire Service might lead some customers to defer orders, which could negatively affect sales revenue in the short term.

Valuation

• The analysts have a consensus price target of $191.1 for MSA Safety 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 $212.5, and the most bearish reporting a price target of just $175.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $354.4 million, and it would be trading on a PE ratio of 25.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $157.99, the analyst price target of $191.1 is 17.3% 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.