New Mystery Ranch-Inspired Products And Global Expansion Will Drive Future Success

Key Takeaways

• YETI's international market expansion and supply chain diversification are set to drive revenue growth and improve net margins.
  
• Continued product innovation and strategic capital allocation enhance long-term earnings and shareholder value through improved direct-to-consumer channels.
  
• Heightened competition, supply chain shifts, and macroeconomic pressures threaten YETI's revenue growth, market share, and margins amid potential product quality challenges and currency risks.

Catalysts

Designs, retails, and distributes outdoor products under the YETI brand name.

• YETI's expansion into international markets, with a notable increase in brand presence and sales in Europe, Australia, and Canada, is expected to drive future revenue growth.
  
• Advancements in supply chain diversification, specifically shifting Drinkware capacity outside of China, are expected to result in cost efficiencies and could positively impact net margins.
  
• Continued innovation with new product launches such as Mystery Ranch-inspired packs, powered cooler systems, and expansions in existing product lines like premium bags can drive top-line growth.
  
• The strategic capital allocation plan, including share repurchases and targeted acquisitions, is expected to support long-term earnings growth by enhancing shareholder value.
  
• Growth in the Direct-to-Consumer (DTC) channels, particularly through corporate sales and e-commerce, along with ongoing omnichannel strategies, could improve revenue while maintaining healthy margins.

YETI Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming YETI Holdings's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.6% today to 11.2% in 3 years time.
• Analysts expect earnings to reach $246.4 million (and earnings per share of $3.15) by about March 2028, up from $175.7 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 16.1x on those 2028 earnings, up from 16.0x today. This future PE is lower than the current PE for the US Leisure industry at 17.5x.
• Analysts expect the number of shares outstanding to decline by 3.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.81%, as per the Simply Wall St company report.

YETI Holdings Future Earnings Per Share Growth

Risks

• Heightened competition and promotional intensity in the U.S. drinkware market could pressure YETI's market share and revenue growth if it needs to respond with increased discounting. This environment may impact net margins if margin-preserving discounts are used to maintain competitiveness.
  
• Ongoing supply chain diversification efforts, including shifting drinkware production outside of China, might lead to temporary disruptions or increased costs, potentially affecting revenues and net margins.
  
• Currency fluctuations pose a risk to international sales growth and profits, as the stronger U.S. dollar may lead to an unfavorable impact on international revenue and operating income.
  
• The need to address a significant product recall reserve in the past highlights potential vulnerabilities in product quality assurance, which can lead to financial liabilities and impact earnings.
  
• The macroeconomic pressures anticipated for 2025 could weigh on discretionary consumer spending, potentially impacting top-line revenue growth if consumer interest in premium, non-essential goods like YETI's products declines.

Valuation

• The analysts have a consensus price target of $43.938 for YETI Holdings 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 $55.0, and the most bearish reporting a price target of just $35.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $246.4 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 6.8%.
• Given the current share price of $34.18, the analyst price target of $43.94 is 22.2% 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.