Tariff Risks Will Pressure Margins While Cost Cuts Support Stability

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AnalystLowTarget
AnalystLowTarget
Not Invested
Consensus Narrative from 16 Analysts
Published
29 Apr 25
Updated
16 Jul 25
AnalystLowTarget's Fair Value
US$42.00
51.6% overvalued intrinsic discount
16 Jul
US$63.67
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1Y
-17.5%
7D
9.0%

Author's Valuation

US$42.0

51.6% overvalued intrinsic discount

AnalystLowTarget Fair Value

Key Takeaways

  • Significant potential tariff costs and inability to pass them on to consumers could compress net margins, impacting earnings, especially in the Propulsion business.
  • Declines in value segment boat brands and macroeconomic pressures could reduce revenues due to lower production volumes and challenges in entry-level products.
  • Brunswick's strategic product introductions, cost reductions, and diverse revenue streams support earnings stability, while cash flow efficiency enables share repurchases and financial resilience.

Catalysts

About Brunswick
    Designs, manufactures, and markets recreation products in the United States, Europe, the Asia-Pacific, Canada, and internationally.
What are the underlying business or industry changes driving this perspective?
  • Brunswick is facing significant potential net tariff costs for 2025, estimated between $100 million and $125 million, which could substantially impact net margins if current tariff rates persist and the company's ongoing mitigation efforts do not yield the expected results.
  • The company is experiencing declines in the value segment of their boat brands, which has been prompted by the increased macroeconomic pressure and declining consumer sentiment. This could further pressure revenues as reduced production volumes and challenges in the entry-level product space might continue.
  • The uncertain macroeconomic environment, emphasized by the abrupt introduction of tariffs in April and subsequent policy confusion, could lead to cautious consumer spending. This, combined with the challenging interest rate environment and capital market turmoil, is likely to apply pressure on earnings as retail sales suffer.
  • Rising costs and the inability to fully pass on tariffs to the consumer through price increases could lead to net margin compression as Brunswick may struggle to offset all tariff costs, particularly within their Propulsion business where it is most impacted.
  • Weakness in entry-level products could necessitate streamlining product offerings, potentially reducing revenue opportunities. Additionally, the pressure on OEM orders and lower production levels could continue to affect earnings, particularly as the company already anticipates a significant reduction in U.S. wholesale shipments.

Brunswick Earnings and Revenue Growth

Brunswick Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • This narrative explores a more pessimistic perspective on Brunswick compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
  • The bearish analysts are assuming Brunswick's revenue will grow by 3.0% annually over the next 3 years.
  • The bearish analysts assume that profit margins will increase from 2.0% today to 6.0% in 3 years time.
  • The bearish analysts expect earnings to reach $333.6 million (and earnings per share of $5.16) by about July 2028, up from $101.1 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 10.0x on those 2028 earnings, down from 37.9x today. This future PE is lower than the current PE for the US Leisure industry at 20.1x.
  • Analysts expect the number of shares outstanding to decline by 0.82% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 7.5%, as per the Simply Wall St company report.

Brunswick Future Earnings Per Share Growth

Brunswick Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Brunswick's successful introduction of well-received new products and execution of structural cost reductions could support revenue and operating margin stability in the challenging macroeconomic environment.
  • The company's strong performance in the first quarter, attributed to its resilient portfolio and proactive pipeline management, indicates potential for earnings resilience despite market headwinds.
  • With nearly 60% of Brunswick's first-quarter adjusted operating earnings coming from recurring revenue businesses, such as the Engine P&A, Freedom Boat Club, and aftermarket sales, there is potential for steadier earnings through diverse revenue streams.
  • Brunswick's efficiency in cash flow generation, as evidenced by a significant improvement compared to the previous year and strong free cash flow in the first quarter, allows for share repurchases which can enhance shareholder value and potentially stabilize share prices.
  • The company's ongoing efforts to mitigate tariff impacts through supply base migration and inventory optimization may alleviate pressure on net margins, providing some level of financial stability amid the tariff uncertainties.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The assumed bearish price target for Brunswick is $42.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Brunswick'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 $88.0, and the most bearish reporting a price target of just $42.0.
  • In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.6 billion, earnings will come to $333.6 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 7.5%.
  • Given the current share price of $58.38, the bearish analyst price target of $42.0 is 39.0% 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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