North America Manufacturing And New Launches Will Secure Future Potential

Key Takeaways

• Investment in domestic manufacturing and automation is set to capitalize on supply disruptions, boosting revenue in tariff-affected categories.
  
• Strategic focus on proprietary products and operational efficiency aims to enhance productivity, expand net margins, and drive future sales growth.
  
• Core sales decline, retail destocking, tariffs, and currency headwinds threaten revenue and profit margins, while new product launches are crucial for growth.

Catalysts

Engages in the design, manufacture, sourcing, and distribution of consumer and commercial products worldwide.

• Newell Brands has made significant strides in reducing its dependency on China for sourcing, planning to decrease U.S. imported goods from China to 10% by the end of 2025, which should mitigate tariff impacts and potentially improve net margins.
  
• The company's investment in domestic manufacturing and automation in North America positions it to benefit from supply disruptions caused by global trade realignment, potentially boosting revenue through increased market share in tariff-impacted categories.
  
• Newell's multiyear innovation funnel, focused on launching consumer-led proprietary products starting in the second half of 2025, is expected to drive future core sales growth and positively impact revenue.
  
• Efforts to optimize and streamline operations through initiatives like the peak program and continuous improvement strategies aim to further enhance productivity and operational efficiencies, likely expanding net margins.
  
• Newell's approach of leveraging high-quality, tariff-free domestic production may lead to significant competitive advantages, particularly in categories like blenders and storage products, potentially increasing revenue and market share as competitors face higher sourcing costs.

Newell Brands Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Newell Brands's revenue will decrease by 0.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.3% today to 6.8% in 3 years time.
• Analysts expect earnings to reach $514.6 million (and earnings per share of $1.09) by about May 2028, up from $-244.0 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 8.0x on those 2028 earnings, up from -9.0x today. This future PE is lower than the current PE for the US Consumer Durables industry at 8.5x.
• Analysts expect the number of shares outstanding to grow by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Newell Brands Future Earnings Per Share Growth

Risks

• The company is experiencing core sales decline of 2.1%, and although this aligns with guidance, it reflects challenges in revenue growth, particularly in certain categories, which could hinder overall financial performance.
  
• Retail destocking and cautious consumer behavior may impact demand forecasts, potentially leading to lower-than-anticipated revenues if the economic environment worsens.
  
• The company's exposure to increased tariffs, especially the additional 125% tariff on Chinese imports, poses a significant risk to profit margins and earnings due to the increased costs in sourcing products in the baby gear category.
  
• There are ongoing challenges from currency headwinds that can negatively affect future revenue conversions and operating margins, impacting the company's overall financial health.
  
• The reliance on a rebuilt innovation pipeline and successful execution of new product launches is crucial for revenue growth. Any delays or failures in these initiatives could adversely affect projected revenue and earnings.

Valuation

• The analysts have a consensus price target of $6.982 for Newell Brands 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 $11.0, and the most bearish reporting a price target of just $5.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.6 billion, earnings will come to $514.6 million, and it would be trading on a PE ratio of 8.0x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $5.25, the analyst price target of $6.98 is 24.8% 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.