Indianapolis Plant Expansion Will Improve Operational Efficiency And Lower Emissions

Key Takeaways

• Expansion and innovation in key segments are bolstering profitability and revenue while improving operational efficiency and sustainability.
  
• Strategically optimizing costs and facility usage enhances margins, supported by strong free cash flow and share repurchases to boost shareholder value.
  
• Currency headwinds and trade tariff risks, alongside LATAM market softness, could negatively impact Ingredion's revenue, margins, and profitability.

Catalysts

Manufactures and sells sweeteners, starches, nutrition ingredients, and biomaterial solutions derived from wet milling and processing corn, and other starch-based materials to a range of industries worldwide.

• Ingredion's robust growth in the Texture and Healthful Solutions segment, driven by strong sales volume, positions the company for increased revenue and higher profitability margins due to its focus on high-margin products and solutions.
  
• The company's renewed multiyear contracts in the U.S./Canada food and industrial ingredients segment have recaptured inflationary impacts, improving both operating income and net margins significantly.
  
• The expansion investments at the Indianapolis plant, including new texture innovations and energy infrastructure upgrades, are expected to enhance operational efficiency and revenue growth, while reducing costs and greenhouse gas emissions over time.
  
• Ingredion's cost to compete program exceeds initial savings targets, indicating further operating income growth through strategic network optimizations and facility closures resulting in improved fixed cost absorption and gross profit margins.
  
• Ingredion's strategic investments in organic growth and innovations, supported by significant free cash flow and share repurchases, are set to enhance earnings per share and shareholder value, showcasing confidence in future profitability and market position.

Ingredion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ingredion's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.7% today to 8.9% in 3 years time.
• Analysts expect earnings to reach $704.0 million (and earnings per share of $11.7) by about April 2028, up from $647.0 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 15.4x on those 2028 earnings, up from 13.5x today. This future PE is lower than the current PE for the US Food industry at 18.3x.
• Analysts expect the number of shares outstanding to decline by 2.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Ingredion Future Earnings Per Share Growth

Risks

• There is concern about continued softness in the LATAM market due to decreased sweetener demand, which could negatively impact Ingredion's revenue.
  
• The weakening of currencies in Brazil and Mexico relative to the U.S. dollar could pose foreign exchange headwinds, which may affect net margins and overall profitability.
  
• The pass-through of lower corn costs and potential currency fluctuations could result in lower price/mix, impacting Ingredion's net sales and earnings.
  
• The potential impact of trade tariffs and regulations, particularly regarding the U.S., Mexico, and Canada trade relationships, could affect Ingredion's ability to source materials cost-effectively, impacting net margins.
  
• Execution of planned investments, including the capital-intensive upgrades at the Indianapolis plant, may not yield anticipated cost competitiveness and revenue growth, risking future earning projections.

Valuation

• The analysts have a consensus price target of $153.0 for Ingredion 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 $168.0, and the most bearish reporting a price target of just $133.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.9 billion, earnings will come to $704.0 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 6.2%.
• Given the current share price of $135.96, the analyst price target of $153.0 is 11.1% 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.