Cedar Rapids Expansion And LATAM Upgrades Will Shape Future Success

Key Takeaways

• Investments in operational efficiency and capacity expansion are expected to drive future revenue growth and margin improvements across key markets.
  
• Initiatives like cost optimization and share repurchases aim to enhance net margins, increase earnings, and boost shareholder value.
  
• Supply chain issues, economic uncertainty, and regional volatility could negatively impact Ingredion’s profitability, sales volumes, and earnings amidst competitive pressures and market challenges.

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 strong sales volume growth in Texture and Healthful Solutions, driven by consumer trends towards clean label and affordable solutions, is expected to enhance future revenue and margin growth due to higher prices per ton and higher margins for these products.
  
• The company's $50 million investment in its Cedar Rapids facility to expand specialty industrial starch capacity positions Ingredion for future revenue growth and higher margins through increased operational efficiency and market demand for sustainable packaging solutions.
  
• Cost competitiveness initiatives, including network optimization and a $50 million run rate savings target by the end of 2025, are anticipated to improve net margins and earnings through enhanced operational excellence.
  
• Ingredion's strategic debottlenecking and asset optimization in LATAM aim to increase capacity for higher-margin products, thereby driving potential future revenue and margin improvements in the region.
  
• Share repurchase plans to the tune of $100 million by year-end are expected to drive future earnings per share (EPS) growth, enhancing shareholder value as part of the company’s total shareholder return strategy.

Ingredion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ingredion's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 9.0% in 3 years time.
• Analysts expect earnings to reach $703.6 million (and earnings per share of $11.16) by about May 2028, up from $628.0 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 14.9x on those 2028 earnings, up from 14.2x today. This future PE is lower than the current PE for the US Food industry at 18.9x.
• Analysts expect the number of shares outstanding to decline by 1.75% 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

• Supply chain disruptions and incremental costs related to trade dislocations and tariffs could negatively impact Ingredion’s profitability, affecting both the cost of goods sold and net margins.
  
• Uncertainty in the macroeconomic environment and potential shallow U.S. recession pose risks to consumer sentiment and could result in lower-than-anticipated sales volumes, impacting revenue.
  
• Volatile conditions in Argentina, such as high inflation and currency instability, could affect Ingredion's joint venture performance and financial results in the LATAM segment, impacting operating income.
  
• Price/mix challenges influenced by fluctuating corn prices and lower raw material costs may not sustain margin improvements, potentially affecting overall earnings.
  
• Competitive pressures in the marketplace and potential changes in customer purchasing patterns, such as trade downs, could result in unfavorable sales mix and lower margins.

Valuation

• The analysts have a consensus price target of $145.906 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 $7.8 billion, earnings will come to $703.6 million, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $138.44, the analyst price target of $145.91 is 5.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.